Stocks of major fintech companies have been hit in recent months.Business like adyen, Blockadeyes Reached a holding They were crushed as expectations of rising interest rates and slowing economic growth pushed down multiples of valuations and overshadowed the previous bullish outlook for these companies.
PayPal credit (PYPL -2.05%).Probably a leader in the fintech industry, but he was unavoidable. Shares have fallen by more than 70% for many of the same reasons that have hurt other companies in the industry since they hit a record high of $ 310 about a year ago. In addition, inflation is still rising, according to the June Consumer Price Index, and we are concerned that PayPal’s business will continue to be adversely affected.
Let’s take a closer look.
PayPal depends on any purchase
“At the same time, the downturn and rising inflation are putting pressure on consumer disposable income,” John Rainey, then chief financial officer, said in a quarterly earnings call. rice field. “One of the things we’ve seen on our platform during the pandemic is arguably a move towards discretionary rather than non-discretionary,” he continued. “Once again, non-discretionary items such as gasoline, food and energy do not necessarily have all of our strengths.”
With all prices appearing to have risen significantly in recent months, it’s clear that households forced to increase their budgets prioritize staple foods over readily available discretionary items. And this situation is not a good omen for PayPal’s business. Consumers adjust their spending in anticipation of difficult economic conditions. As a result, PayPal payments and revenues are reduced.
Last year, PayPal processed $ 1.25 trillion in total payments (TPV) and generated $ 25.4 billion in revenue. Management, led by CEO Dan Schulman, initially predicted that by 2022, POS and revenue would reach $ 1.5 billion and more than $ 29 billion, respectively. However, these estimates have since been revised downwards. Due to the inflationary environment, the declining impact of government stimulus, and the resurgence of face-to-face shopping, PayPal is currently expected to post $ 1.4 trillion POS for $ 28.4 billion (midpoint) sales. I am. On top of that, the threat and outlook for an imminent recession can quickly become negative.
As of December 31, the PayPal payment option is available to 76% of the top 1,500 online merchants in North America and Europe, making it the most widely accepted digital wallet. In addition, PayPal’s consumer personal finance mobile app, Venmo, had 70 million active users annually in 2021. The size of the company, represented by 492 million accounts as of March 31, is an important competitive advantage for the company. .. But there is no doubt that rapid inflation and a potential recession will significantly hinder business on PayPal’s platform.
PayPal is a quality company.
Despite short-term inflationary headwinds, PayPal remains a financially superior company. In 2021, the company recorded a gross profit margin of 47% and an operating margin of 17%. In addition, capital spending is typically only 4% of revenue, so PayPal was able to generate $ 5.4 billion in free cash flow last year. Either way, it’s extraordinary.
Wall Street is optimistic about the company’s outlook. Consensus analysts predict that revenue will increase at a CAGR of 13.5% between 2021 and 2026, with earnings per share increasing by 15.1% each year over the same period. PayPal’s current price-earnings ratio of 25 is the lowest since the company was split. eBay Therefore, based on these assumptions, it is not unreasonable for investors to expect stocks to double in the next five years.
Inflation affects all businesses today, and PayPal is no exception. Fortunately, its huge user base, growth history, and good finances support its potential for long-term success.