PayPal: Investors Gave Up Again After Q2 Results; You Shouldn't

Company Update (PYPL US) (Buy)

Highlights

• PayPal shares have fallen back 19% since August 1

• We believe the strategy is right and the new CEO is a good fit

• Volume grew 11% in Q2, incl. by 30% in unbranded processing

• P/E is 12.3x on guided Non-GAAP EPS, 17.5x on GAAP

• With shares at $60.98, we see a total return of 133% (30.2% p.a.)

Introduction

We review our Buy rating on PayPal after shares have fallen back 19% since the start of August, following Q2 results (on August 2) and the announcement of the next CEO (on August 14). The share price is down 18% year-to-date:

PayPal Share Price (Last 1 Year)

Source: Google Finance (22-Aug-23).

PayPal has been a disaster for investors including us in the past few years. However, we believe this means most investors are too pessimistic to recognise the turnaround potential in the stock and the progress being made. (For a recap of PayPal’s recent history and our involvement, see our first PayPal article on Substack published in May.)

PayPal is progressing on a fundamental turnaround that wi…