Read us and find out if PYPL is Good Stock to Buy in 2022
PYPL is a technology platform company that enables digital and mobile payments for consumers and merchants worldwide
The Business
We see revenue growth of 18%-19% per year for 2021 through 2022, lower than 2020’s growth of 21%, as effects from Covid-19 wear off and growth rates in e-commerce normalize. Total payment volume (TPV) growth moderated to 30% Y/Y in Q3 (FX neutral and excluding eBay Marketplaces), as tougher comparables and soft back-to-school trends crimp upside potential. Venmo TPV rose 36% Y/Y (vs. 58% the quarter prior). Total net new active accounts (NNAs) grew by 13.3 million in Q3, totaling 416 million. We expect to see another 40+ million users to be added in 2021. We see annual EBITDA margins expanding to 29%-30% in 2021 and surpassing 30% by 2023, driven by increasing payment growth and the embedded leverage of processing more payments over the existing network. However, critical to expanding margins will be PYPL’s ability to contain volume-based expenses. We see annual EBITDA margins expanding to 29%-30% in 2021 and surpassing 30% by 2023, driven by increasing payment growth and the embedded leverage of processing more payments over the existing network. However, critical to expanding margins will be PYPL’s ability to contain volume-based expenses.
Investment Case
Our opinion is Buy. Recent third-quarter results were mixed, as PYPL’s initial net revenue target that called for high-teens growth in 2022 (vs. expectations of 20%+) disappointed, confirming that past drivers surrounding e-commerce are leveling off, and will delay the return to historical growth levels investors have become accustomed to. As a result, we think shares could remain in a tight trading range, as the recent acquisition of Paidy (i.e., buy now pay later solution) and the introduction of its Super App take time to materialize and translate to higher TPV. Risks to our opinion and target include the potential for a global economic slowdown, competitive threats from well-capitalized market participants and innovative upstarts and regulatory issues related to domestic or global payments.
Price Target
Our 12-month target of $265 is equal to 47.4x our 2022 EPS estimate, well above its historical average of 38x.
Our risk assessment is MEDIUM. Reflects our view that the company serves dynamic markets and faces notable competition. However, we think the company is well-positioned and well managed, has a healthy growth profile and possesses a strong and flexible balance sheet.
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