PayPal - What moves this stock
In this memo we will discuss 5 key metrics that we believe any PayPal investor/potential investor should constantly follow/monitor so as to get an insight where PayPal stands and how it performs. Please note that the below list is not exhaustive but reflects what we are closely following.
1. Total Payment Volume growth (“TPV”)
Although PayPal shares were recently punished from the slowdown in growth in the post pandemic and post eBay era it is important to see TPV growing at double digit growth rates or close to it (at least in line with e-commerce growth rates) on a y/y basis otherwise it is very likely that investors will revisit their thesis and push the stock into a further decline as it will reveal a competitive position weakness.
Source: PayPal 10K, 10Q filings, StockOpine analysis
2. Venmo TPV and Revenue growth
Venmo is one of the key growth drivers and one of Management’s strategy priorities (along with PayPal digital wallet, Braintree and Checkout).
The recent slowdown in Venmo TPV (only 6%) is a bit worrisome, however the fact that revenues grew at +50% rates makes any concerns fade away. As Venmo impacts take rates positively we want to see both metrics increasing and we look forward to the Pay with Venmo on Amazon launch.
3. Braintree
PayPal does not explicitly report Braintree figures, however, throughout the earnings calls they give insights on how Braintree is performing and most likely you will see a commentary on the transaction expense part as Braintree has higher cost of funding and negatively impacts margins. Don’t let this unfavorable transaction margin impact put you off, as Braintree is one of the growth drivers and the SMB and Europe spaces have attractive profitability characteristics (management comments).
4. Engagement - Active accounts and Payment transactions per active account (“TPA”)
Management recently shifted its focus from growing the number of active accounts exponentially (previous target of 750M accounts Vs current number of 429M) to a more steady growth while achieving higher engagement. A metric that gives some insights on engagement is TPA which in the most recent quarter had a y/y growth of 12%. TPA should continue increasing as any slowdown will reveal Management’s weakness to execute on the revised strategy and could push the price down.
Source: PayPal 10K, 10Q filings, StockOpine analysis
5. Take and expense rates and we mean all rates (total, transaction, expense etc.)
These rates faced a steep decline compared to earlier years mainly due to eBay and tougher competition. Please note that we do not expect these to return to prior levels as competition is more intense and Braintree places a downward impact on take rates and upward push on expense rates. Despite this, we want to see total take rates above or close to 2%, transaction take rates close to 1.9% and transaction expense rates close to mid 80bps. Note that Venmo could be a tailwind for take rates and the recently announced cost optimization program could be a tailwind for transaction expenses.
Source: 10K, 10Q filings, StockOpine analysis
In our opinion, these 5 metrics could move the needle for PayPal as they impact what matters most to investors, i.e. growth, profitability etc.
A close candidate to the above list was operating margin but we believe the above are the roots of any increase/decrease in margins. Of course we follow it and we expect to see an increase given the recent cost optimization program announcement but this will (if it does) materialize in future periods.
Previous write-ups on PYPL 0.00%↑ :
Other reports: PayPal's ROE, Notes from conferences
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