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Mobile Payments are Boosting PayPal’s Growth

Stock (Symbol)

PayPal Holdings (PYPL)

Stock Price

$74

Sector
Financial
Data is as of
November 12, 2017
Expected to Report
Jan 24
Company Description
PayPal Holdings, Inc. is a technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants. The Company’s combined payment solutions, including its PayPal, PayPal Credit, Braintree, Venmo, Xoom and Paydiant products, compose its Payments Platform. It offers consumers person-to-person payment solutions through its PayPal Website and mobile application, Venmo and Xoom. Source: Thomson Financial
Sharek’s Take
David SharekPayPal (PYPL) is on fire as mobile payments surged 54% last qtr, lead by its hot Venmo app. PYPL is known primarily for its PayPal service, but the company has three additional catalysts:

  1. Venmo is a free digital wallet that lets you make and share payments with friends for free (such as splitting dinner), and move money from Venmo to your bank in one day. Merchants pay 3% if you pay them with a credit card (that’s about what PayPal charges).
  2. Xoom allows you to transfer money to other countries, and even let’s you ask for money from someone. Xoom is a big help to immigrant workers in the U.S who send money home.
  3. One Touch is a feature launched last Summer and lets people buy things online in a few clicks by pushing the yellow “Check out with PayPal”button.

Digital wallets are hot right now, and I foresee further adaptation of paying by phone in the coming years. The company also recently signed or expanded partnerships with Chase, Citi, Wells Fargo, Bank  of America, Google, Apple, Facebook, Samsung and Visa. Management has repurchased $700 million in stock so far this year. PayPal stock is hot and it should be! This company is on the cutting edge of digital payments. It just grew profits 31% and with a P/E of 33 the stock is reasonable. I imagine the good news will continue into 2018 and will add the stock to the Aggressive Growth Portfolio today. PYPL is already in the Growth Portfolio.

One Year Chart
Exceptional looking chart. And profit growth has accelerated for 4 straight qrs. Last qtr the company delivered 31% profit growth, which beat estimates of 23% growth. Sales rose 21%. Annual and qtrly profit estimates all ticked up a little. Qtrly profit Estimates are 24%, 23%, 17% and 20% The Est. LTG did just increased from 19% a year to 21% but I think that’s still too low. P/E of 33 isn’t bad considering the potential here.
Fair Value
My Fair Value is a robust 40x earnings. That gives me a current 2018 Fair Value of $91 a share, which is 23% higher than the recent quote. Also, annual estimates have increased the past three qtrs. Note the exceptional 2019 Fair Value of $109, which would be a gain of almost 50% from here.
Bottom Line
PayPal is on the cutting edge with digital payments, and the idea of allowing transfers to friends for free gets more users and then real revenue from businesses that accept either PayPal or Venmo. I like this stock a lot, and will add it to the Aggressive Growth Portfolio today. The stock is already in the Growth Portfolio. PYPL is ranked 8th in the two portfolio’s Power Rankings.
Power Rankings
Growth Stock Portfolio

8 of 35

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A

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