PayPal Holdings Inc. was spun off from eBay in 2015 and is a leading technology platform that enables digital payments and simplifies commerce experiences of merchants and consumers worldwide. By leveraging technology to make financial services and commerce more convenient, affordable and secure, the PayPal platform is empowering people and businesses to join and thrive in the global economy.
Thanks you for the analysis. Can you tell why Paypals ROIC is much lower compared to, for example, Visa/Mastercard? Of course these two are different kind of businesses as payment networks and paypal is a payment solution platform. Still what keeps paypals roic so low comparatively and do you see its getting better ?
Firstly, we think that a direct comparison between PayPal and Visa/Mastercard may not be appropriate. The latter two companies essentially hold a duopoly in a mature and well-established market, requiring minimal additional investments to maintain their dominant positions. In contrast, PayPal operates in a more dynamic landscape where the presence of fintech companies like Square, Stripe, Adyen, Revolut, Wise, and others is exerting pressure on profit margins.
Furthermore, PayPal has undertaken acquisitions, such as Paidy in 2021, which have increased its capital. However, the benefits from these acquisitions, particularly in the Buy Now, Pay Later (BNPL) sector, are anticipated to take time before they become material to PayPal's operations. Despite an overall low Return on Capital (ROC), yet higher than Block, there are expectations of margin improvements in the medium term. These improvements are attributed to cost efficiencies and enhanced opportunities to expand unbranded processing like PayPal Commerce Platform (PPCP). Nevertheless, it's important to note that this path is not without its challenges.
Thanks you for the analysis. Can you tell why Paypals ROIC is much lower compared to, for example, Visa/Mastercard? Of course these two are different kind of businesses as payment networks and paypal is a payment solution platform. Still what keeps paypals roic so low comparatively and do you see its getting better ?
Firstly, we think that a direct comparison between PayPal and Visa/Mastercard may not be appropriate. The latter two companies essentially hold a duopoly in a mature and well-established market, requiring minimal additional investments to maintain their dominant positions. In contrast, PayPal operates in a more dynamic landscape where the presence of fintech companies like Square, Stripe, Adyen, Revolut, Wise, and others is exerting pressure on profit margins.
Furthermore, PayPal has undertaken acquisitions, such as Paidy in 2021, which have increased its capital. However, the benefits from these acquisitions, particularly in the Buy Now, Pay Later (BNPL) sector, are anticipated to take time before they become material to PayPal's operations. Despite an overall low Return on Capital (ROC), yet higher than Block, there are expectations of margin improvements in the medium term. These improvements are attributed to cost efficiencies and enhanced opportunities to expand unbranded processing like PayPal Commerce Platform (PPCP). Nevertheless, it's important to note that this path is not without its challenges.
Well done. Thanks.
Glad you enjoyed it sir.