Summary
PayPal is one of the most vertically-integrated fintech players in the market capitalizing on the digital wallet trend.
Growth is slowing down, which prompts management to change their customer acquisition strategy.
Competition is one of the major risks for PayPal but its strong brand and network effects moats should maintain the company’s dominant market position.
PayPal is a cash flow machine trading at the lowest valuation since its IPO in 2015 — PayPal is a deep value fintech play.
This is my second company deep dive. I have been digging deep in the fintech industry lately as I believe it is one of the most exciting battlegrounds for the next few decades, and PayPal is a must-read for fintech investors, given that it pioneered online payments more than 20 years ago. With that said, grab a cup of coffee. This is a deep dive on PayPal ( PYPL ). JasonDoiy/iStock Unreleased via Getty Images Investment Thesis
The bull thesis for PayPal is the increasing adoption of digital wallets and PayPal is at the forefront of this shift due to its enormous ecosystem of consumers and merchants. The launch of the SuperApp and management’s shift in strategy to focus on engagement will also be key as PayPal looks to drive meaningful ARPU from this digital wallet trend. However, growth is decelerating quickly due to tough YoY comps and a challenging macro environment. Furthermore, competition from other neobanks and digital wallets is heating up, which may add further pressure in terms of growth. However, PayPal has strong brand and network effect moats that should protect the company from the competition. In addition, the recent crash in the stock puts PayPal at the cheapest valuation multiples since its IPO in 2015. The stock price today provides a substantial margin of safety for investors – PayPal is a deep value fintech play. Value Proposition
PayPal is the leading digital payments solutions company, offering a variety of financial services and money management tools for consumers and merchants worldwide. Its mission and vision statements can be seen below. Mission : to democratize financial services to ensure that everyone, regardless of background or economic standing, has access to affordable, convenient and secure products and services to take control of their financial lives. Vision : to make the movement and management of money as simple, secure and affordable as possible. PayPal, formerly named Confinity, was founded in 1998 with the sole purpose of enabling people to send payments through email. The company grew in popularity, especially for sellers and buyers in the rising online marketplace, eBay (NASDAQ: EBAY ). Initially, payments on eBay were made by checks and money orders sent through regular mail, which was slow and tedious. PayPal replaced it with a safer, easier, and faster payment method. As a result of the success, eBay acquired PayPal in 2002.
Since then, PayPal has grown into more than just an email payment company. As the company expanded out of eBay, management and investors saw a much bigger potential for PayPal. As such, eBay spun off PayPal and the fintech company became an independent company in 2015. The diagram below shows PayPal’s suite of payment solutions, which it has slowly built over the last two decades. PayPal FY2021 10-K Braintree – Acquired in 2013 for $800 million, Braintree is a full-stack payments service that enables businesses to accept payments in their app or website.
Venmo – Venmo was acquired by Braintree in 2012. PayPal then acquired both companies in 2013. Venmo is a digital wallet and a peer-to-peer (P2P) payment platform.
Xoom – Acquired in 2015 for $890 million, Xoom offers fast, easy, and secure ways to make cross-border payments.
Hyperwallet – Acquired in 2018 for $400 million, Hyperwallet expanded PayPal’s Commerce Platform, improving its ability to provide payment solutions for global e-commerce marketplaces.
iZettle – Acquired in 2018 for $2.2 billion, iZettle expanded PayPal’s offline presence by offering modern physical point-of-sale solutions.
Simility – Acquired in 2018 for $120 million to bolster PayPal’s fraud prevention and risk mitigation technology.
GoPay (Guofubao) – PayPal took a 70% stake in GoPay in 2019 and finally acquired the company in 2021. GoPay is an online and mobile payments provider in China. As a result of the acquisition, PayPal became the first foreign payment platform to be approved to process transactions in China.
Honey – Acquired for $4 billion in 2020, Honey helps online shoppers find deals, apply savings and earn cashback. Honey […]
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