I had recently concentrated my portfolio more and added to PayPal.
This was a costly mistake and I am out at a loss on my recent buys between 50 and 60.
I had also called PayPal a quality company based on margins and FCF generation profile. I ignored the deceleration in the core business.
The last results were ok, with good EPS growth, but branded checkout (The PayPal button) was only growing 1%.
Venmo is growing well but from a 1.7 B$ revenue low base.
PSP (Braintree) is a decent business, that could have value on it’s own.
The PayPal button has competitive pressure but is still ok.
All and all the results were ok, not great.
Nevertheless, the market and I was shocked by the guidance: lower EPS guided for next year, and the axing of the CEO, to replace the company with a new CEO coming from HP. HP, a stagnating company!
The new CEO will focus on “winning merchants” and invest in the future.
What they call “invest in the future” is actually giving lower fees or even paying out merchants to upgrade to the latest checkout. For me, this is not investing in the future but begging for relevance.
PayPal and I always said, should have focused on getting the buyers engaged. Dan Schulman tried this, Alex Chris a bit. If you get the buyers, you get the sellers, you make money. The problem is that PayPal was managed for the next year, or quarter, not for the long term.
I wanted PayPal to build a super app, a marketplace, to get buyers engaged and to make profits outside of transactions dollars.
But they did not want to make efforts in building enough features. Now maybe they will sell the parts of the business or do spin offs. No ambition.
Here is the message I posted on X.
$PYPL I was wrong.
Sits on a data treasure but the focus is on increasing checkout by giving big merchant incentives next year.
CEO change, guidance weak for 2026. I don't like the new CEO, what PayPal needed was more ambition to have the best buyer experience and services, not cost cutting and giving money to merchants.
No focus on driving customer engagement and extra services. 10 years sitting on the failing customer opportunity to be a customer centric app.
Agentic is interesting but who owns agentic will be the AI layer.
Ads was my idea to monetise data but it's a side project for the company and not a focus.
I was wrong to be arrogant against $PYPL bears and needed more humility
Sad to see the company I worked for, where we were ambitious but ignored by bureaucracy, being controlled for 10 years by yes men and excel template champions, not visionaries.
I should focus more on non battle stocks, EMs, small caps, places with less competition.
I sold
With a CEO from HP and no mention of strategy apart from merchant incentives, even if it is really cheap, I cannot see a good future for the company. Maybe there will be some value in a Braintree standalone business.
So I own my mistakes, this one was pretty bad, and with this newsletter you get no selection tricks, like only selecting winners and talking about them.
I had stocks down and picks wrong like PayPal or Intrum. I had notably more problems in large caps or mid caps in the western markets.
Conclusions
-I will continue to focus more on ex-US, small caps, emerging markets, less competitive markets and hidden companies.
-I will keep a certain level of diversification, based on valuation first. Everyone said to concentrate, but at 2.7% it was a manageable error.
-If the management has no skin in the game and there is no insider buying it is really a negative point.
-If the board has no ambition and the management has no ambition, it is a yellow flag unless it is deep deep value. Alex Chris had ambition, but the board was made of just corporate people and not founders. Especially in Tech, you need constant paranoia.
Onto the next one!
Respect. Can’t win them all.
Most people just hope everyone forgets their bad calls.
Hello,
I’d like to better understand your perspective.
The payments market continues to grow structurally. Even if PayPal doesn’t have a strong moat, it should at least grow in line with the market, or remain stable, given the overall industry tailwinds. At a P/E of 7, you’re effectively buying a low-growth or no-growth business at a very modest multiple.
Also, PayPal is more than just its core branded checkout product, which I think is often overlooked. While the company doesn’t provide a fully detailed breakdown, we can make reasonable estimates.
For example, the PSP segment (primarily Braintree) should generate roughly $14 billion in transaction revenue at a 1.8% take rate. With a transaction margin of 32%, that implies about $4.6 billion in transaction profit. What is that worth on a standalone basis? Even at a conservative multiple, that could justify $20+ billion in value. Notably, Bernstein estimated Braintree’s value at $15–20 billion four years ago (!).
Then there’s Venmo. It still has meaningful monetization potential, particularly through increased credit card penetration, where it could earn a 0.7%–1% take rate. How are you thinking about the value of that optionality? Bernstein estimated 10-15 bil. 1 year ago.
Finally, the branded business appears to be valued basically for free. Though competition and they're lagging competitors in term of tech by 18-24 months. True. If we assume a 2.5% take rate generating ~$14 billion in revenue and 70% TM margin we get roughly $10 billion in transaction margin, even under more conservative assumptions, say, margins compress and transaction profit falls to $5 billion, what would that be worth?
Have you incorporated these segment-level dynamics into your valuation? And where do you think this framework might be flawed?
I’m genuinely interested in understanding the risks or assumptions I may be underestimating.