PayPal: How to Invest with Fundamentals Instead of Hype
đŗ "Not Sexy, But Valuable" Investing
Quantum computing, meme stocks, AI craze... The investment world is full of excitement and hype. But real wealth comes from solid fundamentals, not flashy stories.
Today, let's talk about a company that isn't glamorous but actually makes money: PayPal.
đ¯ Why PayPal?
PayPal is transitioning from a pure payments processor into a broader commerce and financial services platform:
- đ° Digital payments
- đą Venmo (social payment app)
- đ Buy Now Pay Later services
Not an exciting story, but showing consistent revenue growth.
Recent Developments
- Strategic partnership announcement with OpenAI
- Applied for US banking charter (to expand services)
đ PayPal by the Numbers
| Metric | Value | Meaning |
|---|---|---|
| Market Cap | $57 billion | Large cap |
| Gross Margin | 46-47% | Healthy margin |
| Net Margin | 14-15% | Stable profitability |
| Price/FCF | 10x | Cheap valuation |
What's especially good: Free Cash Flow higher than Net Income. This proves the company is actually generating real cash.
đ Growth Rate: Not Flashy But Solid
| Period | Annual Growth Rate |
|---|---|
| Last 3 years | 6.7% |
| Last 5 years | 10% |
| Last 10 years | 14% |
"What, only 6-7%?" you might think. But this isn't a dying company's growth rate. For a large tech company, this is stable growth.
đ Dilution vs. Buybacks: The PayPal Difference
While quantum computing companies increased shares by 185%, what did PayPal do?
They bought back about 20% of their shares.
Here's why this matters:
The Magic of Buybacks
When shares trade at 10x Free Cash Flow and you buy them back:
- Outstanding shares decrease
- EPS automatically increases
- Even with 6-7% growth, EPS can grow 10-12%
This is shareholder-friendly capital allocation.
đ What the Chart Tells Us
PayPal's stock once reached $310. Now? Around $60.
"Wow, down 80%?" you might think. But here's what real investors ask:
"Did the fundamentals drop by 80%?"
The answer is no. Revenue is still growing, margins are healthy, cash flow is strong.
This is the disconnect between price and value. Market perception changed, but the company's intrinsic value hasn't changed much.
𧎠Valuation Analysis
Let's do a 10-year analysis:
Assumptions
- Revenue Growth: 4-8% (conservative)
- Net Margin: 13-16%
- FCF Margin: 16-22%
- Future PE/P/FCF: 16-22x
Results
| Scenario | Intrinsic Value | Expected Return |
|---|---|---|
| Conservative | $94 | 16% |
| Base | $144 | 22.5% |
| Optimistic | $215 | 28.8% |
At current price of $60, double-digit returns are expected in all scenarios.
â ī¸ Risk Factors
Of course, there are risks:
1. Banking Transition
If PayPal gets a banking charter, the analysis framework changes completely. Banking is a totally different business model.
2. Intense Competition
Apple Pay, Google Pay, various fintech competitors
3. Growth Slowdown
As a large cap, the high growth of the past may be difficult to replicate
đĄ Investment Principle: Process Matters
The point of this article isn't "buy PayPal." Don't blindly follow anyone, even if Warren Buffett says to buy.
The key is:
Apply a process you understand to companies you understand.
The PayPal case shows:
- Good investments exist without flashy stories
- Look for disconnects between price and value
- Find companies with shareholder-friendly capital allocation
- Companies doing buybacks instead of dilution are preferable
đ¯ Conclusion
Feeling fear in the stock market is natural. "What if I buy the wrong stock?", "What if I lose everything?" Everyone has those fears.
But the solution isn't chasing flashier stories.
The solution is:
- Learn to see a company's value
- Make wise choices
- Invest so you can sleep well at night
Patience, discipline, and a process you understand â that's the real way to build wealth.