Paypal stock is down -11% post earnings, despite beating on revenue and EPS... Why?
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In Q1, Paypal's revenue was up by 9% compared to Square's revenue ex-BTC at 27% and Visa at 11%. Q1 EPS also increased by 61% to $1.17, which was above the estimated $1.10. The company's revenue of $7.04 billion was also higher than the estimated $6.98 billion. However, the number of accounts only increased by 1%, but total volume and account activity are up, which indicates more quality users than quantity.
Additionally, Paypal has announced a 5% buyback in 2023, which is worth $4 billion. However, cash flow has remained flat-to-down at 4.1% 12m trailing FCF yield post SBC (stock-based compensation). While the company has raised its guidance for full-year revenue and EPS growth to 20%, it trimmed its adjusted operating margin outlook for the fiscal year, disappointing investors.
The market is nervous that Paypal's business is being disrupted at its core by Apple, CashApp, and nimble payments competitors such as Stripe and Adyen. Furthermore, the CEO succession plan is not clear.
However, let's look at the bigger picture. Forward P/E is at a decade low while revenue, EPS, and FCF are projected to grow. We can look forward to tailwinds coming from Venmo, Braintree, PCPP, the MSFT deal, and possible multiple expansions. The stock might stay range-bound for a while longer, but at this point, we're in deep value. PYPL is trading at less than 14x NTM FCF and has $4.5B net cash.
So, what's the bottom line? While the market is currently nervous about Paypal, a long-term investment mindset can bring great benefits. If you're willing to be patient and ride out the bumps, Paypal may prove to be a profitable investment in the long run.
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