Paypal to Stripe: You’re Going to Have to Do Better Than That
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What is the main topic discussed in this episode?
The price for PayPal's buyout just went up today on Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by longtime Fool contributors, Lou Whiteman and Matt Frankel. We are deep into earnings season so far. We had several companies posting today, but of course we can't get to all of them. We're going to cover Boeing's earnings and we're also going to hit the mailbag. But to start, Lou, you said on our last Thursday show that PayPal was one of the earnings calls you thought was actually worth watching. Well, we have it now. Shares of PayPal are about are up about 4%, maybe a little bit more as we're taping this right now. So I'm guessing that you liked what you saw as much as the rest of the market did.
Right. I mean, of course, there's a lot more than just an earnings call here, but we can get into that. But yeah, the quarter was fine. My takeaway is that this is a healthy, stable company that I have no desire to invest in, to be honest. Revenue is up 5%, earnings per share down slightly, but beat estimates. Total payment volume was up 10%. But look, some of that is holding serve in an ever-growing market. I don't know if even like double-digit growth there really impresses me. PayPal is a single-digit growth story with great free cash flows. They continue to buy back their shares. The share count is down about 10% year over year. It can continue to do that or it can go private and use that cash to pay down the leverage.
Each is fine. But going into this, we were interested because, you know, looking at the potential buyout here, look, nothing else. There's nothing in this report to suggest they should scramble and take a bargain price just to get out of the game.
How did PayPal's latest earnings change the takeover conversation with Stripe?
Yeah, I mean, as Lou said, the numbers, especially the headlines, they were fine. I mean, the fact that Venmo is responsible for the lion's share of the growth, it's worth noting. I mean, 14% of that payment volume growth year-over-year was from Venmo. Buy now, pay later volume was up 26% year-over-year. So it's nice to see that part of the business start to get real traction. it's still a very profitable company uh 1.83 billion dollars of free cash flow in the quarter as lou said they're buying back stock hand over fist they're spending roughly six billion dollars annually on buybacks and still have leftover cash flow to invest in their own growth I mean, one interesting point from the presentation they revealed was that they actually mapped out their three-year growth plan for this year all the way through 2028 based on when investors should expect to see some of their growth initiatives and cost reduction plans actually show up in the numbers.
So I found that really interesting, too.
Matt, I want to back up for a second. We're talking about buy now, pay later volumes, Venmo being a lot of the total payment volume gains here. Looking at this business, does it really matter that much which of these business grows the most? If you're looking at PayPal on the whole, Is there one part of the business where you're like, if this one succeeds, it's going to do a lot better than some of its other parts? I don't know. Either it's high margin, whatever sort of trait it is. Is there any particular part of PayPal where you're like, if this is doing well, it bodes well for the company as a whole?
Yeah, well, I mean, think of any business where there's two sides, one of which is still in the earlier stages of monetization or realizing its growth potential. Like, I mean, I don't want to compare it to like an AWS and Amazon's e-commerce platform. But, you know, one side of that business is growing faster than the other. And that's like the real story, even though it's the smaller and less mature part of the business. so i would put venmo kind of in that category in the sense that they're still just figuring out how to properly monetize it i mean a lot of venmo transactions are free they haven't really figured out how to monetize the platform to the extent they've monetized the the the paypal you know consumer checkout program so there there is a lot of monetization to unlock in the platform and buy now pay later is another good example as you just brought up
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:02–1:41
2
How did PayPal's latest earnings change the takeover conversation with Stripe?
1:41–8:22
3
Which PayPal business segments are driving payment volume growth?
8:22–15:23
4
Can Venmo and BNPL materially accelerate PayPal's overall growth?
15:23–21:01
5
Why is Stripe’s $60/share offer considered too low by investors?
21:01–23:59