PayPal Holdings Inc.

PayPal Holdings Inc. (NYSE – PYPL) is a technology company that helps businesses and customers across the world with digital payments and commerce. With 426 million active accounts in more than 200 markets, it runs a worldwide, two-sided network at a scale that connects merchants and customers.

Latest news

• Q1 financial results announcement: On 27^th April 2022, PayPal Holdings Inc. declared its Quarter 1 financial results for 2022. The company’s financial release came in line with the Kalkine group expectations with a minor uptick in revenue and user growth, which appears to have calmed investor concerns.
• Support relief effort campaign: PayPal services for Ukrainians were expanded, and global donation campaigns to help relief efforts were authorized, generating roughly USD 500 million so far.

• Serving Federal Taxpayers: On March 8, 2022, ACI Worldwide (ACI), the world's largest provider of real-time payments software, announced that its subsidiary, ACI Payments Inc., is now collecting payments from federal taxpayers via PayPal and Venmo. For federal taxpayers, ACI will be the first vendor to allow Venmo as a payment option.

Q1 FY22 Financial results:

• Consistent expected topline growth numbers: Paypal Holdings Inc. reported net revenue of USD 6.5 billion, an 8% rise on YoY. Total Payment Volume (TPV) for Q1 grew by 15% on YoY, to USD 323 billion. These results are better than the company’s estimations but quite par with Kalkine group expectations considering the macro-economic environment.
• Decreased profitability margins: GAAP operating income for the first quarter of 2022 was USD 0.7 billion, down 32% year over year. At USD 0.43, EPS was lesser by 53% of what it was the previous year.
• Balance sheet and liquidity analysis: As of March 31, 2022, cash, cash equivalents, and investments totaled USD 15.1 billion, while debt totaled USD 9.2 billion. In Q1'22, the company earned USD 1.2 billion in cash flow from operations, down 29%, and USD 1.1 billion in free cash flow, down 32%. Approximately 11 million shares of common stock were repurchased in Q1'22, returning USD 1.5 billion to investors.

Source: Company Filing

Key Risk

• Fraud/ identity theft Risk: With the growing use of E-payments not just through the bank but currently cryptocurrencies, the chances of fraud/ identity theft have never been so high. Therefore, this has become one of the primary risks faced by PayPal Holdings Inc. currently.
• Credit and Interest rate risk: Paypal provides loans to both households and businesses, mostly but not only in the United States. As a result, failing to collect payments as well as an increase in non-payments as interest rates rise are two major risks in this financial technology organization.

Outlook

PayPal Holdings Inc. in its quarterly report expects TPV to grow by 15-17% for the whole of FY22. Net revenue is expected to grow 11-13% for the FY22 but if eBay is excluded that the growth is expected to be around 15-17%. GAAP earnings per diluted share are expected to be in the range of USD 2.19 – 2.34 compared to USD 3.52 in FY’21. In FY21, EPS of USD 0.27 was because of an extraordinary gain as well as the release of credit reserves.

Valuation Methodology – Price/Earnings value multiple-based relative valuation

 Source: REFINITIV, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.                

Technical analysis

The price for PYPL has been in the downtrend since July 2021 and has corrected almost 70% from levels of around USD 310.00. It has been taking rejections from the short-term (50-day) SMA continuously since then. RSI has been near the oversold area at 36.93. On the weekly time frame, RSI is making bullish divergence with the strong support of USD 80.

1-Year technical chart (as of May 05, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Stock recommendation

PYPL stock price has been in a downward channel since July last year and has fallen around 70% and is currently at the lowest end of its 52-week range of USD 82.06 to USD 310. We have valued the stock using the Price/Earnings value-based relative valuation methodology and arrived at a target price of USD 107.28 taking into consideration a weak outlook for FY22.

Considering the significant correction in the stock price, strong fundamentals, technical analysis, associated risks, and current valuation. We recommend a "Buy" rating on the stock at the closing price of USD 85.43, as of May 05, 2022

1-Year Price Chart (as on May 05, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical analysis summary

*Closing price as of May 05, 2022.

Technical Indicators Defined: - 

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices. 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.