The Power of PayPal (PYPL)
The power of PayPal (PYPL) is far greater than most people realize. In fact, Pakistan’s Finance Minister Asad Umar is asking PayPal to come to his country.
“I have personally reached out to PayPal’s CEO for providing this facility for payment on international dealings in Pakistan,” Umar tells reporters. Notably, Umar claims his government wants to work with PayPal, The Express Tribune reports.
Nor is just PayPal, Umar wants to let Ant Financial’s Alipay into Pakistan, The Express Tribune reports. It is easy to see why Umar is so eager to let PayPal into Pakistan. The finance minister wants to make it easier for money to enter his country through resources like PayPal.
The Power of PayPal (PYPL) cross-border payments are growing fast
BI Intelligence estimates businesses sent $18.5 trillion worth of cross-border B2B payments in 2018, PYMNTs.com reports.
Surprisingly, this number represents just a portion of cross-border payments. To explain, B2B refers to business-to-business transactions. Thus the $18.5 trillion is the money sent by businesses to other businesses.
Moreover, McKinsey estimates global payments providers generated $1.9 trillion in revenue in 2017. In addition, McKinsey calculates those revenues grew at a rate of 11% a year, and will double in five years.
Finally, the amount of remittance payments sent between middle and lower income countries grew by 8.5% in 2017. Specifically, the World Bank calculates that individuals sent $466 billion in remittances between low and middle-income countries in 2017.
Furthermore, the World Bank predicts the total global remittance market will grow by 4.6% to $642 billion in 2018. PayPal could benefit because its digital wallets are a perfect low-cost means of sending money between individual. For instance, a Pakistani man working in America could send money to his mother back home via PayPal if Finance Minister Umar’s efforts succeed.
The Power of PayPal (PYPL)
Umar’s statements to the press represent the power of PayPal (PYPL). Specifically, PayPal has built an extensive and easy to payments network that average people like to use.
To demonstrate, the number of registered PayPal accounts grew by 17% in 2018. Statista estimates the number of active registered PayPal accounts grew from 229 million in 4th Quarter 2017 to 267 million in 4th Quarter 2018.
Thus PayPal added 38 million active accounts to its network in 2018. Moreover, Umar’s statement shows PayPal is expanding into new markets all over the world.
PayPal’s Total Payment Volume grew by 28% in 2018
Importantly, people are sending more money than ever through those accounts.
Finally, the amount of money PayPal processes grew by 28% in 2018. In detail, Statista calculates PayPal’s total payment volume grew from $451.27 billion in 2017 to $578 billion in 2018.
Plus PayPal’s total volume grew fivefold in just six years. Statista estimates PayPal’s payment volume at $150.07 billion in in 2012 and $578 billion in 2018.
Is PayPal making money?
PayPal is growing at a staggering rate but cynics will correctly ask is it making money? Yes, the latest financial numbers demonstrate that PayPal is making money.
For example, PayPal reports a gross profit of $1.901 billion on revenues of $4.226 billion for 4th Quarter 2018. Importantly, PayPal’s gross increased from $1.655 billion in 3rd Quarter 2018 to $1.901 billion in 4th Quarter. In addition, PayPal records an operating income of $598 million and a net income of $584 million for 4th Quarter 2018.
Plus, PayPal’s revenues grew at a rate of 12.87% during 4th Quarter 2018. To clarify, PayPal records $3.683 billion in revenues for 3rd Quarter 2018 and $4.226 billion for 3rd Quarter 2018.
PayPal is generating a lot of Cash
Additionally, PayPal is generating a lot of cash from its payments solutions. Specifically, PayPal records an operating cash flow of $1.134 billion, an investing cash flow of $123 million, and a free cash flow of $913 million for 4th Quarter 2018.
Consequently, PayPal reported $7.575 billion in cash and equivalents and $4.066 billion in short-term investments on 31 December 2018. Thus PayPal had cash assets of $11.641 billion at the end of 2018. However, PayPal’s cash was down from $11.699 billion in 3rd Quarter 2018 and $13.468 billion in 2nd Quarter 2018.
I think the cash numbers demonstrate PayPal is a successful financial services company. PayPal is a successful financial technology company because it is generating a lot of cash.
PayPal should pay a Dividend
Under these circumstances I think PayPal should join its former parent eBay (NASDAQ: EBAY) and pay a dividend.
PayPal should pay a dividend because it is a finance and technology company the market undervalues. To demonstrate, PayPal was trading at $94.73 a share on 20 February 2019.
Meanwhile Netflix (NASDAQ: NFLX) which has very similar financial numbers was trading at $359.91 a share on the same day. For example, Netflix reports revenues of $4.186 billion, and a gross profit of $1.117 billion, for 4th Quarter 2018.
Therefore, PayPal should use part of the cash and short-term investments to pay a dividend to increase its stock value. Particularly, I think PayPal’s stock price could collapse quickly in a bear market.
Hence, issuing a dividend is a smart way for PayPal to protect investors from a bear market. Note my guess; based on gut instinct, is that we will see a bear market in 2020.
PayPal (PYPL) is a value investment
I believe PayPal (NASDAQ: PYPL) is a value investment because of its business.
To explain, PayPal operates an unsexy and undramatic business that many people ignore. That business is payments, a product everybody uses but most people rarely think about.
Hence, PayPal’s platform lacks the glamour of Netflix or the drama and controversy of Amazon (NASDAQ: AMZN). Yet it offers a high growth rate and a lower stock price. Notably, Amazon’s revenues grew at a rate of 19.73% in 4th Quarter 2018.
PayPal (PYPL) is a value investment because of its lack of drama
Moreover, PayPal does not attract the attention that Amazon and Netflix do. That means less drama, less controversy, and less conflict. For example, there are few worries antitrust regulators will target PayPal.
Instead, PayPal’s platform is so reliable government officials like Asad Umar want it in their countries. Hence, I call PayPal an excellent modern day value investment.
PayPal is worth investigating if you want a growing and undramatic tech and finance stock in your portfolio.