To The Moon

$PayPal(PYPL)$ Over the past year, PayPal's stock has risen by nearly 40%, with almost all of those gains occurring after July 30th, when the company reported earnings that surpassed EPS expectations by over 20%. This was followed by a third quarter where they again exceeded EPS estimates by 12%. With PayPal's fourth-quarter earnings report scheduled for February 4th, the big question is whether they can maintain this momentum. In this video, we'll review their third-quarter performance, their Q4 guidance, and explore various factors that could drive further increases in PayPal's stock price. I truly appreciate the ongoing support from you all! If you want to help out the community, simply like this article—it really means a lot and helps boost its reach. And if you haven’t subscribed yet, be sure to do so while you're here. Recap Q3 2024 Earning Summary PayPal's Q3 2024 results highlight strong financial performance with notable gains across key metrics. Revenue increased by 6% to $7.8 billion, while operating margins improved by a significant 194 basis points, reaching 18.8%. The company’s transaction volume grew by 9% to $422.6 billion, reflecting resilient consumer spending. Noteworthy is the 22% growth in non-GAAP EPS to $1.20, which outpaced revenue growth and reflects enhanced operational efficiency. PayPal’s solid cash position of $16.2 billion, along with substantial share buybacks of $1.8 billion during Q3, underscores its commitment to returning capital to shareholders. Here's a summary of PayPal's Q3 2024 earnings report: Total Revenue: $7.85 billion Operating Income: $1.39 billion Earnings Per Share (EPS): $1.04 Total Payment Volume (TPV): $377 billion Key Highlights: User Growth: PayPal added 3.2 million net new active accounts, bringing the total to 453 million. Venmo Performance: Venmo's TPV grew by 12% year-over-year, reaching $70 billion. Strategic Initiatives: PayPal continued to expand its Buy Now, Pay Later (BNPL) offerings, which saw a 30% increase in TPV. Despite a slight decrease in revenue compared to Q2 2024, PayPal's operating income showed improvement, reflecting effective cost management. Fundamental Analysis Now, let's dive into PayPal specifically. While the stock has risen by 40% in the last year, it’s still down over 20% over the past five years. And compared to its all-time high of $310 in 2021, it's down more than 70%. Earnings per share (EPS) are the key metric most correlated with stock price, which is why earnings reports are so crucial. PayPal is expected to announce earnings on February 4th, with analysts estimating a non-GAAP EPS of $1.12 and revenue of $8.27 billion. These estimates are in line with the company’s guidance from Q3, where they projected non-GAAP EPS between $1.11 and $1.17, and GAAP EPS between $0.03 and $0.17. However, slower active account growth of just 0.9%, coupled with conservative Q4 guidance pointing to low single-digit revenue growth, suggests some challenges in user acquisition and increasing competition. Market Sentiment Early indications suggest PayPal should meet or exceed these expectations. Looking at other companies’ recent earnings, like Meta and JP Morgan, we see strong results that may signal a similar outcome for PayPal. Meta, for example, reported on January 29th, beating EPS expectations by nearly 20% and revenue by almost 3%. JP Morgan also posted strong earnings on January 15th, surpassing EPS expectations by nearly 20% and revenue by 3%. The reason these results are insightful for PayPal is because of the similarities in the sectors—both are involved in financial technology, so we can gain some perspective from the performance of financial institutions like JP Morgan, which could reflect trends relevant to PayPal. Guidance Meta's earnings offer some insight into PayPal's potential because both companies rely heavily on revenue from businesses looking to advertise and sell products. Meta’s strong top- and bottom-line performance suggests that advertisers are investing heavily in ads, which often means they’re also spending to promote their products. A significant portion of those transactions could be processed through PayPal, given its focus on enhancing merchant experiences. By improving the checkout process and driving more conversions, PayPal increases the chances that merchants will continue using (and even promote) PayPal as their payment processor. This focus on improving merchant experiences could significantly impact key metrics for PayPal, such as total payment volume (TPV). In Q3, TPV grew 9% year-over-year, which is a solid figure. Maintaining that growth, or ideally reaching double-digit growth, would be a big win for PayPal. Another key metric investors have been monitoring is transaction margin, which also grew by 9% year-over-year in Q3. If transaction margins show double-digit growth, it would be a very positive sign for the company. One metric that has shown less excitement recently is the number of active accounts. This was once a major area of focus, but in the latest quarter, the growth was minimal—just 1% year-over-year. As long as the number of active accounts doesn't decline by 2-3% or increase significantly by a similar margin, I don’t expect much growth here. PayPal saw a surge in account growth during the pandemic years (2020-2021), as online payments boomed. Since then, growth has slowed and plateaued, but this is somewhat expected after such a strong period of expansion. However, the most important metric for me remains PayPal's bottom-line performance. As of the trailing 12-month period, the company’s GAAP EPS sits at $4.19, which is close to the all-time high of $4.39 reached in 2021. Non-GAAP EPS estimates for 2024 are $4.58, with 2025 expected to rise to $4.90. At $4.90, PayPal's projected forward P/E ratio would be around 18, which is lower than the broader market’s P/E. Free Cash Flow Operating cash flow totaled $1.6 billion, with free cash flow at $1.4 billion. Adjusted free cash flow reached $1.5 billion, excluding the net timing impact related to the origination of European buy now, pay later (BNPL) receivables held for sale and their subsequent sale. Risk And Challenges PayPal Holdings Inc. (NASDAQ:PYPL) is intentionally slowing down Braintree volume and revenue growth as part of its price-to-value strategy. The company expects limited gains from interest on customer balances in Q4, with potential challenges in 2025 due to expected interest rate cuts. The transaction take rate decreased by 4 basis points to 1.67%, influenced by the growth of large enterprises and foreign exchange factors. PayPal is also facing difficulties in quickly scaling its innovations for small and medium-sized businesses, primarily due to the long tail of merchants. Additionally, PayPal anticipates higher non-transaction operating expenses in Q4, driven by increased discretionary investment spending. Valuation Compared to a year ago, PayPal’s current valuation is significantly higher. A year ago, the company was trading at a forward P/E ratio of around 10, highlighting how important valuation expansion can be for a stock’s price. Currently, PayPal is trading at about a 24 P/E ratio. If it were to trade in line with the S&P 500, which typically has a P/E ratio between 20 and 25, that would put its price somewhere between $100 and $123 per share, offering potential upside of 11% to nearly 40%. Conclusion In my opinion, I think PayPal could easily reach $120 per share. If a few key things fall into place, like revenue hitting double-digit growth, we could see bottom-line expansion accelerate. This could lead to both multiple expansion and faster earnings growth than investors expect, driving the stock price higher. However, keep in mind that this is just my opinion. Don't buy a stock just because some guy online said so—make sure you do your own research and invest in companies that match your risk tolerance and time horizon. Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose. @Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub