Hochfeld Still Bullish on PayPal

[XMFCochrane]

Another excellent article from Hochfeld making a very bullish case for PayPal. Here’s an excerpt about halfway through the article:

The overall growth of the payment business is and has been quite a bit faster than the growth in retail sales and that is likely to continue that trajectory for the foreseeable future. Mobile payments are increasing their wallet share of the total payments pie. Just about all payment vendors offer some kind of mobile payment option, and mobile payment growth is an increasing component of the landscape. If there is one single factor that has and is likely to continue to set PayPal apart from its competitors, it is the success it has in mobile. At the end of the day, PayPal’s growth numbers, when compared to the other larger payment vendors, are really on a different trajectory altogether.

Last quarter, PayPal recorded an 18% growth in revenues - 21% in constant currency. That was a bit faster than the growth in Q2 and was driven both by increases in transaction revenue but also by other valued-added services which grew by 28% in CC.

Part of that growth was a product of the company’s One Touch mobile solution and Venmo, which is a way of sharing payments and sending money to friends. Apparently, amongst millennials, Venmo facilitates cool exchanges that somehow enhance the payment experience. I actually have a Venmo account that a friend tried to set up for me - needless to say I have never used it as I simply am not cool enough to have fun paying for something. If I knew how, I would probably close the thing - but far be it for me to gainsay what is working.

…

Mobile payment volume for PPYL increased by 56% last quarter to nearly $26 billion. The growth in mobile and Venmo payments are the main drivers of what has allowed PayPal to grow share in its space and they really represent the opportunity the company has to exceed estimates in 2017. Last quarter, mobile payments reached 29% of TPV, up from 24% all of 2015.

Read the whole thing at http://seekingalpha.com/article/4037409-paypal-special-sauce…

As always with Hochfeld’s articles, there is a lot to work through. But he really does have a way of bringing out lots of useful information.

Matt
Long PYPL
MasterCard (MA), Nestle (NSRGY), PayPal (PYPL), and Verizon (VZ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

[PaulWBryant]

Part of that growth was a product of the company’s One Touch mobile solution and Venmo, which is a way of sharing payments and sending money to friends. Apparently, amongst millennials, Venmo facilitates cool exchanges that somehow enhance the payment experience. I actually have a Venmo account that a friend tried to set up for me - needless to say I have never used it as I simply am not cool enough to have fun paying for something. If I knew how, I would probably close the thing - but far be it for me to gainsay what is working.

That is hilarious and my exact experience with Venmo. A friend made me DL it so she could send me $50 for a concert ticket. Later I sent $15 of it back to chip in for pizza or something. Ha…the $35 balance will sit there forever (or until I chip in for pizza again) because I’m too lazy to figure out how to actually link it to my bank.

I think that the above valuations reflect tensions between those who think management will be able to accomplish its goals and those who think that competition, in particular, will bring down growth and margins.

I like these concluding remarks and would probably just be on the other side of this issue, particularly with margins. They may grow just fine, but I don’t think they’ll ever be able to have better margins than they do now…and my guess would be they’ll come down some. Even if they can maintain their preeminence in the market, it’s just not a terribly profitable space. The net income in the 10-15% range they’ve enjoyed the last couple years is phenomenal for them. It would be incredible to even maintain that level.

Bear