Study the PayPal report: paranormal growth against the background of weak results

Study the PayPal report: paranormal growth against the background of weak results

PayPal HoldingsPYPL74.48 $BuyService in partnership with Tinkoff Investments. Quotes are updated every 15 minutes

PayPal (NASDAQ: PYPL) — fintech company from the USA. As a separate legal entity exists since 2015, before that, as an eBay business unit. The main product of the company is the payment system of the same name, known in many countries of the world.

At the end of April, PayPal submitted a report for the first quarter of 2022, which pleasantly surprised investors, because of what the company's shares rose in price by 11%. Key points from the report:

  • revenue increased by 7% to $6.483 billion versus the market consensus forecast of $6.41 billion;
  • the number of accounts increased by 9% from 392 million to 429 million;
  • net earnings per share fell by 53% with 0,92 to 0,43 $, and adjusted decreased by 28% to 0,88 $ and fully coincided with the market forecast;
  • the company lowered its annual profit forecast, as it expects a decrease in the volume of payments due to rising inflation and increased global uncertainty.

Sales structure

the main income of the PayPal comes from monetary transactions, and the business is divided into two parts: by operating segments and sales geography.

Operating segments. There are only two of them.:

  1. Transaction revenues bring the company 92% of the overall result. these include commissions from monetary transactions., as well as additional fees, for example, currency conversion fees for cross-border transfers.
  2. Other revenue is not the main activity, e.g. income from affiliate programs, referral fees, various subscriptions and others.

In the first quarter of 2022, weak dynamics in the main segment continued. In the third and fourth quarters of 2021, PayPal transaction revenues increased by 10 And 12%, and in the first three months of this year, the growth was only 7%. Other revenue added 18%.

Sales geography. PayPal serves more than 400 million users in 200 different markets, which the company divides into three major geographical segments: USA, United Kingdom and other countries. The main income is brought by the American market, about 56% of the overall result.

In the first quarter of 2022, PayPal recorded an increase in revenue only in the United States, two other regions showed negative dynamics against the background of suspension of activities in Russia and global inflation growth, which is why many customers have switched to economy mode.

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Sales structure, billion dollars

Operating segments1к20211к2022The change
Transaction revenues5,6215,9987%
Other revenue0,4120,48518%
Sales geography1к20211к2022The change
USA3,0633,67120%
United Kingdom0,6250,526−16%
Other countries2,3452,286−3%
total revenues6,0336,4837%

Sales structure by operating segment, billion dollars

Sales structure by geography, billion dollars

Operating activities

the operational activities of the PayPal can be assessed by four parameters:

  1. Number of active users. The indicator takes into account the entire audience of the company's services, if they have been registered and have made any transaction in the last 12 Months.
  2. Number of payment transactions. All successful money transactions of users, for example, the purchase of a product or a money transfer.
  3. Number of transactions per account. Calculated by dividing the second operating indicator by the first.
  4. Total amount of payments (TPV). Transaction volume, passing through the company's infrastructure. The difference between this indicator and the second is, that it is expressed in monetary terms.

Operational metrics

20182019202020211к2022
Active Users, million accounts267305377426429
Payment Transactions, billion pieces9,812,415,419,320,2
Single account transactions36,940,640,945,447
TPV, million dollars5787129361 250323

Profit

In the first quarter of 2022, the PayPal earned a net profit of $ 0.509 billion - by 54% less than last year's result. The main reason is the lack of a one-time income, which took place in the first quarter of 2021 due to the tax revaluation of liabilities.

In addition to net profit, the company recorded a decrease in EBITDA and free cash flow due to a strong increase in operating expenses.. The first indicator fell by 23% to $1.039 billion, and the second on 32% to $1.051 billion.

Key financial results of the company, billion dollars

1к20211к2022The change
Revenue6,0336,4837%
EBITDA1,3421,039−23%
EBITDA margin22%16%−6 p. P.
Net profit1,0970,509−54%
free cash flow1,5371,051−32%
net debt3,2253,3614%
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Management forecasts

Following the publication of the results for the first quarter, management presented two forecasts for future financial performance. Let's start with the short term: in the second quarter PayPal will increase revenue by 9% to $6.8 billion, and net income per share will fall from 1 up to 0,44—0,46 $, the adjusted figure will decrease from 1,15 to 0,86 $.

In general, the results will be at the level of last year., considering the fact, that in the second quarter of 2021, a one-time income was 0,31 $ on 1 share: 0,2 $ brought a revaluation of long-term investments, 0,11 $ – release of credit reserves.

As for the medium-term forecast for the whole of 2022, management expects, that TPV will grow by 13-15% to 1.412-1.437 trillion dollars, revenue — by 11-13% to 28.2-28.7 billion dollars, net earnings per share will fall from 3,52 up to 2,19—2,34 $, adjusted net earnings per share will decrease from 4,6 up to 3,83—3,91 $.

Comparison with competitors

EV / EBITDAP / Enet debt / EBITDA
Mastercard30,5636,510,67
Upstart Holdings29,0352,05−1,25
PayPal20,9329,600,64
Visa19,0125,290,47
American Express11,7616,311,06

What's the bottom line?

PayPal showed unremarkable financial results in the first quarter: The company's revenue increased by 7%, and EBITDA and net profit fell by 23 And 54% respectively. I see two possible reasons for the growth in the value of shares after the publication of the report: growth in the number of active accounts and more than a twofold decrease in the company's capitalization since the beginning of the year, as a result, the market decided, that all the current negativity is already in the price.

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