|Re: PayPal - PYPL |
On February 11, PayPal hosted its 2021 Investor Day event and provided promising financial and operational guidance through 2025. PayPal expects to roughly double its annual free cash flows by 2025 from 2020 levels. In our view, this update further reinforces our optimistic view towards PayPal. When we update our free cash flow model of PayPal for the new year, we expect to increase our estimate of the company’s fair value.
In 2020, PayPal added 72.7 million net new active accounts (‘NNAs’) to its operations which included the 10.2 million NNAs added in the first quarter due to its acquisition of Honey Sciences for ~$4 billion in cash. A growing active user base helped enable PayPal to grow its total payment volume (‘TPV’) to $936 billion last year, up 31% versus 2019 levels. By the fourth quarter of 2020, PayPal had around 377 million active accounts.
Looking ahead, management forecasts PayPal will roughly double its number of active accounts by 2025 while its TPV is expected to hit $2.8 trillion by the end of this period. PayPal views its medium-term growth outlook quite favorably, as do we, and we appreciate the promising guidance management issued during PayPal’s 2021 Investor Day event.
Another key announcement PayPal made back in October 2020, was that it would allow PayPal account users to store and trade cryptocurrencies. Management noted during PayPal’s fourth quarter earnings call that the firm “saw an exceptional response from our crypto launch” and that PayPal would expand the functionality of its digital wallet to allow customers to use cryptocurrencies as a funding source when shopping at one of the ~29 million merchants partnered up with PayPal. By the end of the first quarter of 2021, that functionality is expected to go live, though it appears PayPal will launch the service first in the US before launching the service in international markets a couple of months later.
Sometime in the first half of 2021, PayPal will expand cryptocurrency trading and shopping related services to its popular peer-to-peer money transfer app Venmo. During the company’s 2021 Investor Day event, the firm noted that half of its digital wallet users that utilize the service for cryptocurrency-related purposes log in to PayPal’s platform every day. PayPal plans to continue launching new services and expanding the functionality of existing services going forward that will cater towards the needs of its consumer and merchant customers. There is significant overlap as one can see in the upcoming graphic down below. PayPal views its total addressable market (‘TAM’) across the payment processing and payment solution space standing at a whopping $110 trillion.
Management intends to continue pursuing share repurchases going forward with the company noting that it would aim to return 30%-40% of its free cash flows back to investors in the medium-term.
I have PYPL in several accounts I manage and will look towards increasing the size of those positions as cash becomes available.
To those of you with access, Valuentum calls PYPL one of their Best Ideas for 2021.