The FCF generation of PYPL and its willingness to engage in buybacks are unparalleled. PayPal doesn't need to grow - it just needs to survive to be a very profitable investment.
The implied growth rate of PYPL's FCF over the next 10 years is -9%, which seems absurd to me. At worst everything is flat/weakly positive, as it has been for years. If Enrique can cut costs even better. I still see a lot of value here and I'm buying more.
"This is fine, I'll own it cheaper" ~ Joel Greenblatt
I agree. Its just disapointing to go from a visionary leader to a cost cutter. The company abandons any ambition at leadership and transformation to just cut costs.
I'm very happy with the transition. Visionary leaders are great and all for morale but increase cash burn and often distract the business from what it is good at (cough cough superapp nonsense).
I would rather be profitable and boring than unprofitable and interesting.
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.
Hello, I am not sure exactly where the margin numbers you have come from since it seems to exclude administrative and personal cost which cannot be removed.
I agree that it is probably undervalued now on a sum of the parts basis, especially that the new CEO is probably here to slice it apart and sell it, or to cut costs. Also cutting it apart is not an easy task, but doable.
So from a pure value perspective it makes sense for a maybe 50% pop.
However from a business perspective, PayPal under good leadership could have been worth 5 or 10 times this, and I guarantee they could have done it with a real CEO or a person with vision.
So this is this disappointment also that made me sell as I am looking for more than a 50% profit.
It would have been to focus on monetising users outside of transaction fees, making a super app for core users (even if they are 10% of the 400 millions that would be huge), going all in on payUSD or PayPal funds, making advertising a priority.
The thesis was one of ambition and transformation, now it is a value thesis while the company is run into fire sale or low ambition management by an office type guy.
I am open to re-entering after my minimum legal waiting period on losses passes, if the strategy becomes ambitious.
I’m using TM (transaction margin dollars), which PayPal defines as total net revenues minus transaction expense and transaction and credit losses. If they continue discounting, we should see transaction expenses increase, which would reduce transaction margin. Importantly, this metric is calculated before general and administrative costs.
Really appreciate the transparent breakdown here. The point about PayPal prioritizing merchant incentives over buyer engagement captures something I've seen play out badly in fintech - companies that forget which side of the marketplace actually drives value. Had asimilar experience with a SaaS investment that kept discounting instead of building stickier features. The lack of founder energy on the board probably sealed the fate way before the new HP CEO showed up tbh.
I am not so acquainted with PayPal from an investing perspective. But reading your overview on the different parts PayPal owns, got me wondering. Is PP maybe becoming an interesting take over for private equity? To sell it for parts?
It is not my kind of investment plays, but I am curious how it will play out. Always fun to learn more from such situations.
The FCF generation of PYPL and its willingness to engage in buybacks are unparalleled. PayPal doesn't need to grow - it just needs to survive to be a very profitable investment.
The implied growth rate of PYPL's FCF over the next 10 years is -9%, which seems absurd to me. At worst everything is flat/weakly positive, as it has been for years. If Enrique can cut costs even better. I still see a lot of value here and I'm buying more.
"This is fine, I'll own it cheaper" ~ Joel Greenblatt
I agree. Its just disapointing to go from a visionary leader to a cost cutter. The company abandons any ambition at leadership and transformation to just cut costs.
I'm very happy with the transition. Visionary leaders are great and all for morale but increase cash burn and often distract the business from what it is good at (cough cough superapp nonsense).
I would rather be profitable and boring than unprofitable and interesting.
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.
Hello, I am not sure exactly where the margin numbers you have come from since it seems to exclude administrative and personal cost which cannot be removed.
I agree that it is probably undervalued now on a sum of the parts basis, especially that the new CEO is probably here to slice it apart and sell it, or to cut costs. Also cutting it apart is not an easy task, but doable.
So from a pure value perspective it makes sense for a maybe 50% pop.
However from a business perspective, PayPal under good leadership could have been worth 5 or 10 times this, and I guarantee they could have done it with a real CEO or a person with vision.
So this is this disappointment also that made me sell as I am looking for more than a 50% profit.
It would have been to focus on monetising users outside of transaction fees, making a super app for core users (even if they are 10% of the 400 millions that would be huge), going all in on payUSD or PayPal funds, making advertising a priority.
The thesis was one of ambition and transformation, now it is a value thesis while the company is run into fire sale or low ambition management by an office type guy.
I am open to re-entering after my minimum legal waiting period on losses passes, if the strategy becomes ambitious.
But look at the board and CEO, politicians type.
I’m using TM (transaction margin dollars), which PayPal defines as total net revenues minus transaction expense and transaction and credit losses. If they continue discounting, we should see transaction expenses increase, which would reduce transaction margin. Importantly, this metric is calculated before general and administrative costs.
Really appreciate the transparent breakdown here. The point about PayPal prioritizing merchant incentives over buyer engagement captures something I've seen play out badly in fintech - companies that forget which side of the marketplace actually drives value. Had asimilar experience with a SaaS investment that kept discounting instead of building stickier features. The lack of founder energy on the board probably sealed the fate way before the new HP CEO showed up tbh.
agree
Thanks for this honest take - more important/beneficial to hold ourselves accountable rather than only report the winners.
This level of honesty is refreshing!
I am not the only one!
Nice of you to admit your mistakes.
I am not so acquainted with PayPal from an investing perspective. But reading your overview on the different parts PayPal owns, got me wondering. Is PP maybe becoming an interesting take over for private equity? To sell it for parts?
It is not my kind of investment plays, but I am curious how it will play out. Always fun to learn more from such situations.
Respect. Can’t win them all.
Most people just hope everyone forgets their bad calls.