There are 33 million merchants that now accept PayPal (NASDAQ:PYPL) worldwide. In this clip from “3 Minute Stocks Updates” on Motley Fool Live, recorded on Jan. 5, Motley Fool contributors Brian Feroldi and Brian Withers discuss why they think PayPal is on the right track and why now might be a prime time to buy.
Brian Feroldi: PayPal, ticker symbol PYPL. This is a FinTech giant so the key value to watch is total payment volume. That is a key metric. For the most recent quarter, that number was up 26% to $310 billion. That is an annualized run-rate of $1.2 trillion with a T, up 19%. Really good. Even more amazing, this company used to be essentially 100% dependent on eBay (NASDAQ:EBAY) for everything. eBay revenue is now 3% of the total. That’s great. Now, revenue growth was significantly below that. Revenue only grew 13% to $6.18 billion, and that was actually shy of Wall Street’s estimates a little bit. Now, the company signed up 13.3 million net new active accounts during the quarter, that was up 15%. That brings the company’s total number of users to 416 million net new accounts and 33 million merchants now accept PayPal worldwide. Now, on the bottom line, adjusted earnings-per-share only grew 4% to $1.11. That was ahead of their guidance. The company cranked out $1.3 billion in free cash flow. That figure itself was up 20%. Venmo, which PayPal owns, continues to be a very bright spot for this business. Venmo, total payment volume was up 36% to $60 billion, that’s rapidly approaching more than 20% of total payment volumes. Company’s balance sheet is fantastic, $20 billion in cash, $9 billion in debt. The big news from the quarter though was that starting this year, Amazon (NASDAQ:AMZN) and Venmo will have a relationship with each other so that’s step one to getting PayPal and Amazon to be hooked up with each other. Company’s buy now, pay later capabilities is now operating at a $8 billion dollar run-rate and nearly a million merchants offer buy now, pay later services. Crypto is growing. It’s crypto usage was up 15%. A company closed on its acquisition of Paidy, which is a leading FinTech provider in Japan. For the rest of the year, guidance was pretty good, all things considered. Total payment volume in the upcoming quarter, about 13%. Total payment volume for the full-year between 32-33%, that should lead to revenue growth of 18% and 55 million net new account adds during the period. We saw just like with many companies, some of PayPal’s growth got pulled forward into 2020, and that has been a headwind in 2021. But if you look up and down what this company is doing, no doubt in my mind, this is on track.
Brian Withers: Yeah, Brian. Wow. This company is firing on all cylinders. I decided to take a quick look at the stock price, and it’s down from its high, 38%. Is this a buying opportunity?
Withers: Alright-y. [laughs]
Feroldi: Very much so. This is a phenomenal compounding machine. It’s currently trading under 40 times next year’s earnings. That’s pricey in absolute terms but this is a wonderful business. I still think it’s capable of producing high double-digit, high teens revenue growth, not to mention all of the acquisitions that are out there that they potentially made to accelerate that further. They’re buying back stock. They’re improving margins. They’re increasing partnerships. They just signed up with Amazon. This company is doing very well.
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