Paypal Holdings Inc Valuation – March 2019 #PYPL

Company Profile (excerpt from Reuters): PayPal Holdings, Inc., incorporated on January 30, 2015, is a technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants. The Company’s combined payment solutions, including its PayPal, PayPal Credit, Braintree, Venmo, Xoom and Paydiant products, compose its Payments Platform. The Company operates a two-sided global technology platform that links its customers, both merchants and consumers, around the globe to facilitate the processing of payment transactions, allowing it to connect merchants and consumers. The Company allows its customers to use their account for both purchase and paying for goods, as well as to transfer and withdraw funds. The Company enables consumers to exchange funds with merchants using a range of funding sources, which include a bank account, a PayPal account balance, a PayPal Credit account, a credit and debit card or other stored value products, such as coupons and gift cards. The Company offers consumers person-to-person (P2P) payment solutions through its PayPal Website and mobile application, Venmo and Xoom.


Downloadable PDF version of this valuation:

ModernGraham Valuation of PYPL – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $119,362,281,153 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.27 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 19566.67% Pass
6. Moderate PEmg Ratio PEmg < 20 54.19 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.89 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.27 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $1.88
MG Growth Estimate 15.00%
MG Value $72.25
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $27.21
MG Value based on 0% Growth $15.95
Market Implied Growth Rate 22.84%
Current Price $101.69
% of Intrinsic Value 140.74%

Paypal Holdings Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the low current ratio, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.58 in 2015 to an estimated $1.88 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 22.84% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Paypal Holdings Inc revealed the company was trading above its Graham Number of $28.32. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 54.19, which was above the industry average of 21.22. Finally, the company was trading above its Net Current Asset Value (NCAV) of $4.2.

Paypal Holdings Inc scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $4.20
Graham Number $28.32
PEmg 54.19
Current Ratio 1.27
PB Ratio 7.89
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $32,963,000,000
Total Current Liabilities $25,904,000,000
Long-Term Debt $0
Total Assets $43,332,000,000
Intangible Assets $7,109,000,000
Total Liabilities $27,946,000,000
Shares Outstanding (Diluted Average) 1,194,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.72
Dec2018 $1.71
Dec2017 $1.47
Dec2016 $1.15
Dec2015 $1.00
Dec2014 $0.34
Dec2013 $0.78

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.88
Dec2018 $1.35
Dec2017 $1.09
Dec2016 $0.82
Dec2015 $0.58
Dec2014 $0.32
Dec2013 $0.26

Recommended Reading:

Other ModernGraham posts about the company

PayPal Holdings Inc Valuation – June 2018 $PYPL
Paypal Holdings Inc Valuation – Initial Coverage $PYPL

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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