As the NASDAQ has crumbled since Thanksgiving PayPal Holdings (NASDAQ:PYPL) has stood strong, but whether PayPal stock still is a good value is a different question.
While PayPal stock is down nearly 5%, over the last month that’s less than half the fall of the NASDAQ average, which is down 12.5%. It’s better than payments industry leader Visa (NYSE:V), which is down 10.5%, or merchant processor Square (NASDAQ:SQ), which is down nearly 24%. For the year PayPal shows a gain of 4%.
PayPal was bought by eBay (NASDAQ:EBAY) in 2002 for $1.5 billion. It was spun out by the same company in 2015 and now is worth nearly four times more than its erstwhile parent. In its previous incarnation it was known as the company that gave Elon Musk of Tesla (NASDAQ:TSLA) his first fortune.
CEO Dan Schulman, who took over in 2014, has reinvented the company, which had been trying to serve as an alternative bank for online stores, into a mobile payments giant.
PayPal Stock is Profitable
The result has been steady, profitable growth. PayPal earned nearly $1.8 billion on revenue of $13 billion in 2017 and should do even better in 2018, with expected 2018 revenue of over $17 billion.
Schulman has also been on an acquisition binge, buying Venmo parent Braintree and Xoom to become a global player. Schulman also sold the credit payments portfolio to Synchrony Financial (NYSE:SYC) for $7 billion.
PayPal has been using this war chest for global expansion in payments, buying Hyperwallet and iZettle, sometimes called the “Square of Europe,” for $2.2 billion just before it was about to go public with a valuation of $1.1 billion.
The result has transformed PayPal from something you use instead of your Visa card into a global payments conglomerate, one that with iZettle can handle both sides of transactions. In seeking allies PayPayPal al actually benefits from the looming presence of Amazon.com (NASDAQ:AMZN) in payments, which retailers see as a rival.
The acquisitions have also made PayPal less vulnerable to takeover. With a market cap of nearly $91 billion as trade opened Dec. 26, it is worth more than many of its consumer credit card rivals. It is approaching the size of Citigroup (NYSE:C), which is worth $120 billion, and it is worth three times more than Capital One Financial (NASDAQ:COF), another enormous card issuer.
This has made PayPal beloved by analysts. There are now 47 analysts following it, and 33 have it on their buy lists. It is now seen as a leading “fintech” play, one that combines that stability of a bank with the flexibility of an app company, and those analysts making the buy call have seen their clients richly rewarded for it.
The Bottom Line on PayPal Stock
Our Tezcan Gecgil, for instance, recently called PayPal stock a “strong buy on any dip” and that has been its history over the last few years, although the dips have been few and far between.
PayPal carries the risks of any online banking system, like viruses that steal money from customer accounts, which aren’t FDIC insured, and a global presence that makes it vulnerable to a reduction in world trade.
PayPal also carries a sky-high price to earnings multiple of nearly 45 and pays no dividend. In today’s market, it’s an aggressive play, not a defensive one, but if you’re still playing offense in your portfolio it’s a good one.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
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