In an industry full of uncertain acronyms, it’s surprisingly hard to find any good sources that approve of what FinTech really is. While the meaning remains to be associated with an open framework, PayPal Holdings Inc (NASDAQ: PYPL) is one such technology platform company that lets consumer pay digitally and merchants worldwide for various services and has emerged as a hot stock recommendation among analysts and investors.
The group’s payment solutions include PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. As at May 20, 2018, the stock traded at a market price of $80.79 with a market capitalization of $94 billion. It has a P/E ratio below 50. The group however does not pay any dividend but is emerging as a great pick when investors look at technology based stock recommendations.
PayPal is now setting to expand its global reach and has agreed to pay $2.2bn to buy iZettle (commerce platform in Europe and Latin America), snapping up the Swedish payments start-up just before it was set to become the biggest fintech in Europe to list. The US payments group is said to be paying double the amount that iZettle was targeting in its IPO. iZettle has joined the bucket list of Swedish tech players that have been bought up by a bigger US rival. This was thus noted to come after both Skype and Mojang, which were bought by Microsoft before being able to list.
On one side, the deal is PayPal’s third sizeable acquisition in five years after it bought Braintree and its Venmo mobile money transfer platform for $800m in 2013 and Xoom, the international money transfer service, for $890m in 2015; and on the other, it has fueled the scenario where how few of the prospects in European technology space still manage to resist the urge to getting sold out and instead try to develop into big companies to rival their US competitors. Meanwhile, PayPal believes that through this move the group will enhance its offerings as the retail world is increasingly becoming a multichannel world with mobile phones blurring the distinction between online and offline sales. Up till now, PayPal has been looking to develop its own in-store payments service, called PayPal Here, but this remains sub-scale and is only available in the US and UK. As per the group, PayPal Here has grown quite nicely and the demand from small businesses was as expected.
Meanwhile, the US Payments company generated $1.3bn of free cash flow last year, and had spun off from eBay with a strong net cash position. This helped it expand through acquisitions while it still managed to have $7.8bn of cash, cash equivalents and liquid investments, as at the end of March. The group’s GAAP EPS grew by 33% to $0.42 in the first quarter of 2018 while non-GAAP EPS grew 29% to $0.57. The revenue was up 24% to $3.69 billion. PayPal now expects revenue to grow 16 - 18% at current spot rates for FY18. The group’s return on equity has been improving and is noted to be close to 13% with positive return on investment. While it is yet to grow up to the likes of Apple, the ladder to heights seems to be framing up.
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