PayPal Holdings, Inc.

PYPL Details

PayPal Holdings, Inc. (NASDAQ: PYPL) is a global technology company that allows digital payments and streamlines commerce experiences for merchants and customers. With 426 million active accounts (including 392 million consumer active accounts and 34 million merchant active accounts) across more than 200 markets, it operates a worldwide, two-sided network at the scale that connects merchants and customers. It makes money by charging fees for completing payment transactions for its customers and other payment-related services, which usually depend on the amount of activity performed on our payments platform.

Latest News:

• Serving Federal Taxpayers: ACI Worldwide (ACI), the world's leading provider of real-time payments software, announced on March 08, 2022, that its subsidiary, ACI Payments Inc., is now accepting PayPal and Venmo payments from federal taxpayers. ACI will be the first vendor to accept Venmo as a payment method for federal taxpayers.

FY21 Results:

• Boost in Topline: Overall revenue increased 18.26% YoY to USD 25.37 billion in FY21 (ended December 31, 2021), up from USD 21.45 billion in FY20, owing to increases in Total Payment Volume (TPV).
• Cash and Debt Position: As of December 31, 2021, the company had cash and cash equivalents (including short term investment) of USD 9.5 billion and total debt of USD 9.05 billion.
• Growth in Active Accounts: The company reported a 13.00% growth in active accounts to 426 million in FY21 from 377 million in FY20.
• Transaction per Active Account: PYPL reported a significant increase in the number of payment transactions per active account to 45.4 in FY21 from 40.9 in FY20.

Key Risk:

• Dependence on Cross Border trade: Cross-border trade (transactions between merchants and consumers in various countries) is a significant source of revenue and profit for the company. Any factors that raise the costs of cross-border trade for its customers or restrict, delay, or make cross-border trade more difficult or impractical, such as trade policy or higher tariffs, could reduce cross-border transactions and volume, negatively impact revenues and profits, and harm its business.

Outlook:

• FY22 Guidance: As of FY21, PYPL expects to achieve YoY growth of ~15% - 17% on a spot rate and FX-neutral (FXN) basis. It also estimates an EPS of about USD 2.97 – 3.15 and USD 4.60 – 4.75 on a GAAP and Non-GAAP basis, respectively, along with a Free Cash Flow of ~USD 6.0 billion.
• Q1FY22 Guidance: PYPL anticipates ~6% growth in revenue on a spot and FXN basis to approximately USD 6.4 billion. It also expects non-GAAP EPS of ~USD 0.87 in Q1FY22.

 Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation:

PYPL's stock price has fallen 66.04% in the past six months and is currently leaning towards the lower band of its 52-week range of USD 92.25 to USD 310.16. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 120.20.

Considering the significant correction in the stock price, decent financial performance, solid margins, positive outlook, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 97.54, down 2.67% as of March 10, 2022, at 9:42 AM ET.

Three-Year Technical Price Chart (as of March 10, 2022, at 9:42 AM ET). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

PagSeguro Digital Ltd.

PAGS Details

PagSeguro Digital Ltd. (NYSE: PAGS) is a Brazilian company that provides financial technology solutions to micro, small, and medium-sized businesses (SMEs). PAGS also provides cash-in and cash-out services, as well as aid with working capital and cash-flow management.

Q3FY21 Results:

• Rise in Topline: Due to 22.2% and 49.1% growth in active merchant base and acquiring Total Payment Volume (TPV), respectively, the company reported a 47.87% increase in revenue from transaction activities and other services to BRL 1.79 billion in Q3FY21 (ended September 30, 2021), compared to BRL 1.21 billion in Q3FY20.
• Growth in bottom-line: The company's net income increased by 22.06% year on year to BRL 321.5 million in Q3FY21, compared to BRL 263.4 million in Q3FY20.
• Surge in TPV: PAGS Consolidated TPV increased by 85.78% YoY in Q3FY21, to BRL 125.58 billion from BRL 67.59 billion in Q3FY20.
• Development in Active Merchants: PAGS witnessed an increase in active merchants to 7.7 million in Q3FY21 from 6.3 million in Q3FY20.

 Key Risks:

• Depending on Third Parties: Third-party facilities, infrastructures, components, and services are offered by third parties, such as data center facilities and cloud computing. If these third parties fail to deliver, the company's operations may be jeopardized, resulting in a severe financial impact.
• Supplier Concentration Risk: PAGS relies on a few suppliers for some crucial manufacturing equipment needed to create point-of-sale (POS) devices. Furthermore, a single manufacturer assembles and tests most of its POS equipment. As a result, any vendor violation of the contract could put the company's operations on hold for a while.

Valuation Methodology: Price/ Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

In the most recent quarter, the company had a decent turnout. In addition, the company has a considerable competitive edge over its competitors due to its industry-leading margin profile and debt-free balance sheet. PAGS's stock price has fallen 54.70% in the past three months and is currently leaning towards the lower band of its 52-week range of USD 11.81 to USD 61.65. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 15.75.

Considering the robust topline and bottom-line performances, progress in active merchants, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the current price of USD 12.71, down 5.43%, as of March 10, 2022, at 11:51 AM ET.

Three-Year Technical Price Chart (as of March 10, 2022, at 11:51 AM ET). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

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