A week or so ago, Bear and Strelna asked questions about PayPal and their partnerships with Mastercard and Visa. I asked for a few days to finish an article on that subject and said I would then be happy to answer any questions. I had also wanted to buy more shares of PayPal, so I needed to keep quiet for disclosure purposes.
Anyway, my shares were purchased earlier this week and the article was published today:
After years of strained relationships between itself and the major payment networks, PayPal Holdings Inc (NASDAQ:PYPL) finally reached groundbreaking multiyear deals with both Mastercard Inc (NYSE:MA) and Visa Inc (NYSE:V) last year.
According to both deals, PayPal will allow consumers to choose their Mastercard and Visa credit cards as a preferred option of payment. PayPal also agreed to share data with the credit card companies and their card-issuing banks. In return, PayPal’s digital wallet will be accepted wherever Mastercard or Visa contactless payments are accepted at physical retail locations.
PayPal CEO Dan Schulman defended these deals because they offer PayPal customers more choices in an effort to prioritize customer needs.
Read the whole thing at http://www.fool.com/investing/2017/01/06/2-numbers-paypal-in…
Anyway, I would be happy to answer any questions on PayPal now.
One of the reasons I am hesitant about Square, is because I think PayPal is a better investment in the exact same space. Granted, it might not have quite as much upside as Square, but I believe it has far less risk and plenty of growth ahead. In many ways PayPal’s vision is the same as Square’s, except they have a huge head start and have already proven the profitability of their platform.
Braintree does nearly everything Square does on the payment processing side. Venmo seems to be growing faster than Square Cash. And none of this even touches upon PayPal’s flagship program and its dominant position in e-commerce: http://www.fool.com/investing/general/2016/12/14/an-obvious-…
Here’s a look at PayPal’s numbers:
Revenues (millions) Q1 Q2 Q3 Q4 2014 1874 1983 1971 2193 2015 2137 2297 2258 2556 2016 2544 2650 2667 EPS (non-GAAP) Q1 Q2 Q3 Q4 2014 0.27 0.28 0.24 0.28 2015 0.29 0.32 0.31 0.36 2016 0.37 0.36 0.35
2016 Q3 Earnings
Revenue Growth (billions)
2015 Q3 TTM Revenue = 8.885
2016 Q3 TTM Revenue = 10.417
YOY Revenue Growth = 17.2%, previous Q 16.4%
2015 Q3 TTM EPS = 1.2
2016 Q3 TTM EPS = 1.44
YOY EPS Growth = 20%, previous Q 23.9%
P/E (Check Current Price) = 40.09/1.44 = 27.84
1YPEG = 27.84/20 = 1.39
# of Active Accounts (millions) Q1 Q2 Q3 Q4 2014 148 152 157 162 2015 165 169 173 179 2016 184 188 192 Payment Transactions (millions) Q1 Q2 Q3 Q4 2014 918 930 972 1144 2015 1123 1161 1216 1428 2016 1414 1448 1512 Payment Transactions Per Active Account Q1 Q2 Q3 Q4 2014 23 23 24 24.5 2015 25.2 26.1 26.9 27.5 2016 28.4 29.4 30.2 Total Payment Volume (billions) Q1 Q2 Q3 Q4 2014 53.676 56.736 58.184 66.039 2015 63.021 67.482 69.738 81.523 2016 81.056 86.208 87.403 Transaction Margin (percentage) Q1 Q2 Q3 Q4 2014 65.0 65.7 63.1 63.5 2015 64.2 63.8 62.3 61.1 2016 60.4 59.8 58.7 Operating Margin (%)(non-GAAP) Q1 Q2 Q3 Q4 2014 18.4 20.4 2015 22.1 22.6 19.9 20.8 2016 21.1 19.9 18.4
There are, I believe, a lot of upcoming catalysts for PayPal too. Its international remittance platform, Xoom, is projected to become profitable this year. Thus far it has been a drag on earnings.
Pay with Venmo will allow Venmo account holders to begin using the popular app to make purchases at different retail locations.
PayPal’s One Touch continues to set online sale conversion rates on fire.
Now, none of this is to disparage Square. When Bear first brought the company to the board I didn’t think I was going to be impressed with the company. I was wrong.
As I’ve said previously, Dorsey’s vision for payments solutions was much more robust than I originally thought. This is far more than a hardware company selling mobile card readers. I love that they offer their payment processing customers other things like loans and human resource services.
I like that just like Braintree, PayPal’s online payment processing service, Square allows merchants to customize their checkout experience. Or that for a 1% fee, Square will deposit their customers’ money into their accounts the same day. It’s good stuff. I think it has potential. And getting in now could be really lucrative.
But I think an investment in PayPal comes with almost just as much growth and less risk.
Sorry for the rambling again This post honestly began as just a way to ask if there were still questions on PayPal and just grew into another unwieldy mess. So still considering Square, but longer PayPal.
MasterCard (MA), Nestle (NSRGY), PayPal (PYPL), and Verizon (VZ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx