PayPal: New Strategy, Same 2025 Earnings Target - No Need To Panic

(Preview) Company Update (PYPL US) (Buy)

Summary

• PayPal's share price has fallen 28.3% since Q4 results on Tuesday, to 60% below its July 2021 peak. It now trades at 27x 2021 EPS.

• Investors were unnerved by a move in strategy away from new accounts, which includes abandoning its 750m accounts target for 2025.

• 2025 targets for revenue, EPS, and cash flows are confirmed; 2022 EPS growth is still expected at 12-15%, excluding tax and credit one-offs.

• PayPal has achieved genuine growth in volume and revenues since the pandemic, and is expecting more margin expansion in the future.

• With shares at $126.08, even on sharply lower forecasts, we expect a total return of 157% (27.3% annualized) by 2025 year-end. Buy.

Introduction

PayPal Holdings, Inc.'s share price has fallen 28.3% since Tuesday (February 1), when Q4 2021 results were released after markets closed.

We upgraded our rating on PayPal to Buy in May 2020. PYPL stock is now 9.5% down since our upgrade, with a 46.2% decline since the end of 2020.

Investors were likely unnerved by a ch…