#78 | Is PayPal the Ultimate Value Play or Value Trap? w/ Type-F Capital

PayPal has fallen over 80% from its all-time highs, and the market is pricing it like a business in a permanent state of decline. We wanted to find out if the market has it right or if this is one of the most misunderstood opportunities in finance today. So we sat down with Emir from Type-F Capital, a data-driven equity research analyst who has been following the company's transformation from the inside out.

Emir brings a unique, independent perspective on why the death of PayPal has been greatly exaggerated. Emir covers topics like:

• Is PayPal ever turning around?
• The KPIs he tracks
• The risks and opportunities
• Parts he likes and dislikes about the business
• And much more.

Emir's socials:

• Substack
• YouTube
• X (Twitter)

Transcript

SPEAKER_01 0:04

The heck is happening to the stock.

SPEAKER_02 0:07

It made sense that it came down. It doesn't make sense that it came down to this point. Like something either I am completely wrong or the market is completely wrong. Yeah. Yeah, it's a strange one. Why wouldn't they be doing that?

SPEAKER_01 0:55

Welcome back. It is always uh it's a pleasure to talk to you again. I'm excited to have you back on the show. Last time we spoke was uh about Palantir, quite the company. It's doing pretty good so far. And today I would like to talk about PayPal with you. Um, everybody seems to have an opinion about the company, and uh I think you know a thing or two about the company itself. So maybe I think we can avoid all the history and what they do. I'm assuming people people listening to this will know what PayPal is and are more interested with what the heck is happening to the stock. It's down over 80% from all-time highs. So maybe just could you share your view as to what is happening? What is the market seeing and pricing in maybe?

SPEAKER_02 1:41

Well, being down from all-time highs is quite natural. You know, it was the during the peak, COVID, it was kind of a bubble. They made a lot of money during that period, but it was you know misallocated. They did, you know, some deals that weren't very favorable, that had to be divested years later. It was a very bloated company. It still is kind of bloated, but you know, if you look at you know revenue per employee or you know, efficiency metrics like that, it's it's it's not too bad, but it's still you know a bit bloated. And uh yeah, it made sense that it came down. It doesn't make sense that it came down to this point. You know, sometimes you know, I make a valuation of a company, and uh when I see that there's like 100% plus like fair value is like a double from where it's trading, it makes you stop and think, like, okay, what is wrong here? Like something either I am completely wrong or the market is completely wrong. So what I usually do then is I do a reverse uh DCF. So instead of you know trying to project my own forecast of what do I expect will happen to the company, you know, growth, cash flows, and risk, I just see, okay, what is the market expecting? So I work the other way around. So I make inputs to reach where the stock is trading today. And if if I tell you, using 2024's uh free cash flow to the firm margins uh of 16%, the market is pricing in a decline of 6% per year over the next 10 years. So they did 32 billion in 2024. The market is expecting them to do 17 billion in 2034. So they they the market is pricing them currently as if they're gonna decline 6% in revenues per year, uh, assuming they uh have the same margin, which is just like it's not reality, it's not what will actually happen. I mean, they are still growing, never mind like declining, they are growing still, they're still a juggernaut, they're still positioned well uh for the future of finance. I mean, they're doing a lot of you know uh innovation in the space, they're like an early mover, you know, they have a new uh management that is actually well. I didn't mind Dan Schumann that the previous CEO that that much. He made some mistakes, but this new um, you know, the Alex Chris, the new CEO, he came in, he cleaned house, he you know, replaced the whole management team, he like set a new course, like, no, we're actually gonna grow and we're gonna go profitably. So, yeah, there's a lot of changes happening to the company structurally, but nothing that is happening today or has been happening since the time I've been covering the company, which is uh a couple of years now, nothing is telling me that the company is gonna decline 6% per year. So the market, I believe, is wrong. So the question then becomes okay, so why is the market pricing it this way? And I'm not you know too fond of looking at stock quotes, I don't look at charts. Like even when I study a company, like the chart I like, I don't even open it. Like, even for my own investment portfolio, I don't look at the you know stock prices, stock chart. But it is interesting trying to all we can do is guess right, okay. So why is this happening? And I think everyone more or less is aware that PayPal is cheap and undervalued. I think anyone you ask can like confirm that. Like even if they don't like the company and say, Yeah, it looks cheap. So everyone is already aware that it's like super cheap, super undervalued. But what we don't have for the stock price to actually move is we don't have any material results from PayPal World, Fast Lane, PayPal Everywhere, you know, uh all of these new Venmo innovations, you know, the crypto stuff, the ads platform. We don't have any material results from that yet. So there hasn't really been a catalyst, so that's why I think it just keeps compounding downwards. But sorry if I'm talking too much, just one last point. As an investor, I don't mind it too much because they can repurchase so many shares at this price point. You know, it is severely undervalued, and there's not really much downside from here. So, you know, if I take my valuation model and the free free cash flow that I forecast that they will, you know, generate, if that goes towards buybacks, the company will be private by 2031. Like they will have repurchased all shares outstanding. So that makes me believe that okay, the stock is really down. There's not much else, like there's nowhere else for the stock to go because if it just keeps going down, they're just gonna take the company private. So, you know, there will be shareholder returns regardless. So I'm not too worried. I think a lot of people are frustrated with the timeline. You know, it's been trading down for so long, you know, it hasn't been doing anything for the past three years. Like, even you know, bulls lose patience. I think the the average holding period for stocks, you know, keeps going down year over year. I think as of 20, I think the statistic I saw for 2024 was like the average holding period is eight months. So I understand that when the stock hasn't moved for three years, it frustrates a lot of people. So, you know, I myself, for my investment philosophy, I'm not too worried. I can kind of see why the market is doing what it's doing to the stock, but I also believe that you know downside is extremely limited due to the buyback dynamic at play. And I think they are really well positioned, you know, for the future of finance, and uh I don't mind it too much. So that was a long, you know, brief uh tangent.

SPEAKER_01 7:19

Uh no, but uh PayPal deserves uh some long thoughts, it's a lot more nuanced than just um yeah having to explain the company in a couple sentences. So it deserves it deserves a little bit more explanation. You know, there's a there's a lot of things happening, there are many opportunities for PayPal, which you mentioned, which we'll probably get to at a at a later stage. But there are some risks with the company, for sure. There is uh a lot of uncertainty about stable coins, um, although I'm not too worried about that myself. Obviously, you have competitors like Stripe and Agen competing with the unbranded side of PayPal with Braintree. You have the rise of uh Google Pay, of Apple Pay, which is taking um Let me just uh stop you.

SPEAKER_02 8:06

So so so let's talk about these competitors, right? How long has Stripe been around?

SPEAKER_01 8:11

Definitely. More than 10 years. More than 10 years, definitely.

SPEAKER_02 8:14

How long has Apple Pay been around? Long around? More than 10 years. How long has Google Pay been around? More than 10 years. How long has Adon been around? More than 10 years. So this is not something new. Like these have been in the same marketplace with PayPal, you know, for the for the payment processing side side of things. And everyone's margins have been, you know, destructed because it is kind of race to the bottom when it comes to payment processing. Because more or less, uh, when you take Stripe and PayPal, when you choose, you know, let's say that you run a commerce business, you typically get to choose, okay, they want to go with PayPal or Stripe, and you will typically go with the one that is cheaper, like because the offerings are more or less the same to like a small to medium-sized business. So all they do is undercut each other into perpetuity. That's why you see take rates going down from, you know, I don't have the numbers in front of me, but you know, if you go back 10 years, it was above 3%. Now we're at like what 1.8, 1.7, and it keeps going down because it is a race to the bottom. So you're just undercutting one another into perpetuity. So that's what uh Alex Chris really has highlighted. Like, no, we have a value proposition for everyone that is connected to our network that we are actually going to be able to raise our take rate over time. That's why you see uh the uh payment volumes take a hit in the short term in order to actually exit that you know race to the bottom. So there are a lot of dynamics at place. So when people say, Oh, there's a lot of competition, I mean, it's been competition forever. And uh PayPal has been dominant, uh has been dominating those other companies, you know, for more than a decade. I mean, they went from something like uh 25% market share to still being around you know 20% market share. So it's it's not like like they still, if you make a digital payment, like uh it's likely by you know using PayPal infrastructure, you know, they have a 20% market share. They're still like a giant, so like it's not going away overnight, it's definitely not going away to the tune of you know negative six percent per year in terms of revenue. So, yes, it is competitive. They are doing something about it. That's why they have to provide value more than just you know processing the actual payment. Like you have to have some other, you know, as they call it, value-added services to make people choose you and to make people pay up and want to use you, which is what they're doing with Fastlane, you know, all these, you know, guest checkout solutions and all this other in integration. So they are working on that. But uh it's yeah, I mean, it is competitive, it has been competitive, you know, throughout the company's history, you know, post 2010 when when e-commerce I actually became a large thing. So I don't I wouldn't say that it's like I don't think that's why the stock is down personally, but I mean it's still you know just guessing. So sorry to cut you off. Go go ahead. You were talking about risks.

SPEAKER_01 11:18

No, I I get what you're saying, and uh I think you're right. The the risks have been there for a long time already. Although one could argue that Apple Pay used to be more present in the physical world, but is now more is now more readily available in the online world as well with um single payment options, so one uh what what's it called? One-click options. Um but yeah, I I get what you're saying. What is your view on perhaps stable coins or maybe you know, PayPal is quite expensive. Uh, we use PayPal ourselves for a couple of our services. But if we could choose between, for example, Stripe, which we also use, what is makes merchants choose PayPal over Stripe in the long term? Because if Stripe offered the same things as PayPal, we would choose Stripe every day of the week because it's a lot cheaper. It's like it's not even close.

SPEAKER_02 12:13

Yeah, yeah. I use uh Stripe Stripe as well, but not for that reason, just because it was many times easier to set up Stripe than it was to set up uh PayPal. So that's why I chose it. But uh the thing is for small to medium sized businesses, which is like Alex Chris's Forte, that's what he did at Intuit, that's what he you know made him such a great prospect. We haven't seen too much on that front. You know, they they do talk a lot of commentary about it, you know, you know, integrating, you know, uh uh various uh solutions just for small to medium sized businesses, but I think the value over the long term will be uh which which I also think is PayPal's main moat, is actually the data because they are by far the largest payment processor in the world. So when we talk the ads business, um we don't know much about it, you know. They they have it's been on the card for years, for like uh two years now, but uh they haven't really shown much for it. But let's talk hypothetically. So let's say that you are you know visiting be it Nike.com or whatever website, instead of having you know a generic uh you know landing site that shows you you know hot products, you know, in general or whatever, whenever you go to a site, the landing page is already according to your your taste, your purchase history, because they they know that you made these purchases. Sometimes you use a business card for this kind of product, sometimes you use your personal card for this kind of product. So already there is uh you know innovation that they've been doing, you know, with the the guest checkout solutions where you know it can automatically select, you know, based on your purchasing history and autofills the the address, you know. Oh, it's uh company purchase, it should go to this address, or you know, they already do that uh uh autofilling stuff. But what if instead of you know serving you traditional ads, you can actually, based on you know the user profile, you can have a wholly you know customized shopping experience to whatever site you go that is connected, you know, to the vault. I think um they said something like uh about a third of all credit cards, all cards, so debit, credit, whatever, all cards in circulation at this point in time, about a third of them are vaulted with PayPal. That is like massive. That that is scale that no one is even close to. And when you actually start to leverage the data you have on you know customers, you can actually start to do some pretty you know interesting things that something like Stripe can't do to the same scale. I think they have about uh over 300 million merchants connected to the vault, and as that keeps expanding, you know, that mode just widens. So I think something like that can provide a lot of value over time. So it's still you know up in the cards what their actual ads will be like because you know, scrolling through uh the PayPal app and you see like, oh, there's a discount here, like that's not interesting. Like anyone can do that when you actually started talking, like using the the PayPal platform to actually leverage that data properly, you know, intuitively, like natively, so it doesn't feel like you're being served ads. It feels like this is a you know normal browsing experience, uh you know, a regular shopping experience, but all the products that I like and it changes dynamically depending on you know how you change as a person and how your shopping habits change and so forth. So I think something like that is what could serve as you know long-term value to differentiate you know from all these other payment processors, because if it's just about processing a payment, sure you can like um talk about you know processing speeds, whatever, they they're all equivalent more or less, you know. There's not much you know differentiation or much more to there, I believe. But uh I think the ads and the vault in particular can be you know a differentiator for PayPal.

SPEAKER_01 16:20

So you you mentioned a couple interesting things there. Uh the data being a potentially very unique mode, and the more we learn about AI today and in the world of technology and online, we see more and more that data is sort of a commodity, but the more unique it is, the more powerful it becomes. So I I see your point there. But with people having this new management team, and they're trying to do a lot of different things now. Uh, like you mentioned, the old management is is uh has gotten rid of it. The new management is very focused on innovating, being, you know, a lot more transparent. I I can really appreciate the new management team's honesty and the new incentives look a lot more aligned with long-term uh investors.

SPEAKER_02 17:11

It's frustrating uh a lot of investors when you know the CFO goes on these you know uh bank conferences and talks about the product, like, yeah, it's gonna be a rough quarter, like keeps repeating it and the stock price comes down. So, yeah, like the transparency goes two ways. But you know, as you mentioned, like they're doing a lot. Like, we didn't even talk about like the whole uh being first on the ball in terms of you know agentic shopping. Like we didn't even talk about that.

SPEAKER_01 17:38

My question was regarding do you think you know PayPal has been, I would call it more of like a Frankenstein acquisition-like company? They've been buying a lot of different um businesses over time, and they have been quite transparent about the fact that not everything works seamlessly together, uh, unlike a Stripe or an Agen that is more uh like built from the ground up. Do you think they are able to make the transition work with all the different brands they have? And you know, it's hard to turn around this slow juggernaut from the past into like this new sort of innovative company with just a new management team.

SPEAKER_02 18:23

Yeah, I mean, I think we're we're seeing it already. You know, the perfect example is that most people probably like if you talk about regular people, they don't even know that Venmo and PayPal are like the same company. And uh we're already seeing a seamless integration, you know, with PayPal World, you know, where you can Venmo someone using a PayPal account in Germany or like Mercado Pago in uh Latin America or you know, 10 cent pay, whatever it's called in China. So they're already integrating, you know, Venmo and PayPal because they used to be like two separate entities within the company and they did not collaborate. Like they have spoken out about this. Like, yeah, we have PayPal, we have Venmo, we have all of these different, you know, MA deals that have gone through. But as you mentioned, there's like no collaborative effort, there's no like learning from each other, there's no you know integrations between each other. I think that has been changing, and we're already seeing like the two major products start to you know work together, you know, Venmo and PayPal. So yeah, I absolutely believe that they will get rid of those that don't fit into you know what their um what is called uh mission statement, like uh what they're trying to do. They will get rid of those. They have already started to, you know, uh divest and sell some parts of the business that don't fit. And whatever is left, I too do believe that they will integrate and make it seamless together. And I think Venmo is a perfect example of that.

SPEAKER_01 19:48

Am I correct in saying that PayPal's also trying to get into the uh physical retail as well with uh NFC?

SPEAKER_02 19:56

Yeah, yeah. I mean, they're already operational across various offline stores. I think that's like uh second half of last year is when that started to pick up. So yeah, they're all they're also doing that. We don't really know what the actual material results are, what kind of volumes we're talking, you know, what the expansion plan is, what the time is, how much, you know. So we don't actually know how much it will do for the business more than you know, Alex Chris saying that wherever you want to pay, however you want to pay, we want to be there for you. So they they want to be available everywhere, and that includes offline. So yeah, they've already begun doing that. I think they call it like PayPal everywhere. That's like the campaign thing. So it doesn't have to be, you know, what do you call it an NFC? Uh I don't know the tech they use, you know, for the I guess most tab to pay is is it the NFC really? I don't know, I don't I don't know what the what the tech is, but it doesn't have to be like you know, uh PayPal account, you know, it can be the back-end infrastructure, you know. So when when you go to an to an A HM, for example, those terminals are from Adian. So they are like, you know, actually uh doing the payment processing offline. I think PayPal is uh doing both that, but also like the payment solution for actually paying. So you know, you can use your uh PayPal account, you can use Apple Pay, you know, LinkedIn. So yeah, I think they're they're doing a lot for the offline. As for actual material, you know, financial results from it, we we don't know yet.

SPEAKER_01 21:31

For investors that are interested in in PayPal, perhaps we have shareholders listening that are worried about the company. Maybe me included, I'm pretty interested in PayPal. Uh I've done a deep dive which will be released quite soon. And I'm very intrigued. I see a lot of the same traits and characteristics you mentioned, but I'm I'm looking for some some some pushback. Um but um what KPIs do you look for to see if the turnaround is uh uh is truly happening and what they're saying is is working.

SPEAKER_02 22:05

Are users transacting more and are they transacting for larger value so over time? So those are the only thing that matters really. So in the simple terms, revenue per user, you know, is that going up? Are they transacting more or less? And the value amount that they're transacting for, is that going up or down? So you want to see both trend upwards and you want to see them doing that without sacrificing margins. So at the end of the day, you want to see that take rate conversion, you know, that's like the the simplest way to look at it is just look at like, okay, they processed this much volume, how much of that turned into revenue? And that is you know the take rate. So you want to see that bleeding stop and you want to see margins. I think the margins are actually good for the company. They have pretty good margins. As you mentioned, they're not the cheapest uh alternative out there. So if they can maintain margins or even you know increase them over time, which it looked like that they are planning on doing I think those are the main KPIs to look out for if you're you you know just tracking PayPal on the side and don't actually dive deep into everything that they're doing because you kinda as you mentioned you know you kind of get into this you know bull high hysteria if you just you know listen to all their announcements. You know they're big you know uh I don't know what people typically call them but you know they do a lot of press releases. Oh we're part we're partnering here we're partnering here we're partnering here and then you're like okay so what are the financial results from that partnership like we're we're not seeing seeing it so yeah it's a good news show. Yeah so if you're just tracking the company look look for those things you know is the take rate bleeding stopping and you know what are the payment volumes looking like and what what are the margins but you know I think the main thing the main confusion about PayPal so when you talk about to other investors or if people are listening to this and they're not deep into the company people still believe if you say PayPal they're like PayPal no one uses PayPal like it's been like five six years or like I paid someone for like a PlayStation of eBay like with PayPal they still don't know like what PayPal does a majority of PayPal's revenue is not what most people think PayPal is. So people think that you go to PayPal.com you sign in to the site and then you transfer money to someone that also has a PayPal account that's that that's what people think PayPal is. They don't understand that like they're a payment processor primarily like uh no matter if you pay with them Visa, MOSCAR, Apple Pay Google Pay like they they integrate all different kinds of payments and they power like e-commerce. So if you've been doing any online shopping you know in the past month then you probably use PayPal you know or even over the past five 10 years you probably use PayPal because they you know do something like 20% of all online e-commerce like that's their primary business not the what people believe is like the main thing of PayPal that's why people are so bearish initially before they actually look deeper into the company they they just think that I log in here I transfer money to someone that also logs into the site and that's that you know that's not the company so revenue per user do you look at uh uh revenue divided by like active accounts or transaction margin dollars what do you look at the main one is payment transactions per average active account so they disclose you know how many active accounts they have at the end of the period and you can get the average you know by looking at the the start of the period and so payment transactions per active average active account they disclose the number of payment transactions so you take that and then you just divide the payment transactions by average active accounts and then you get the payment transactions per average you know account it's pretty simple. Simple. Yeah yeah yeah do you look at the branded uh checkout volume do you think you know braintree is growing significantly faster than the uh the the PayPal branded button do you think over time this should become a larger part of the pie braintree and thus perhaps potentially lowering lowering margins or what do you think no I think uh the fastest grower is Venmo so as that becomes you know it's currently the lowest part of the mix so I think segmented they break out branded which is you know uh online so when you choose pay with PayPal on a website that's you know the highest margin segment it is currently around 30% you know it has stayed uh you know around that 30% range for you know many quarters but as you mentioned it's not a grower so it grows something like you know I think eight percent last quarter and then you have uh you know the peer-to-peer and segment is when you you know make transactions you know from a person to another it could be remittances it could be what whatever you know that is actually growing above let me let me look so that's growing at 12.6% so that's already you know displacing branded and they are you know you know fairly similar size you know the volumes are like 132 billion you know for the quarter and then you have you know the payment service provided the PSP segment and that is you know as you mentioned Braintree is growing uh 8.4 percent so that is you know roughly equivalent to to branded so it's not you know displacing branded yet but you know it is up there and then you have other you know online and offline experiences which is at 12% so you know things are growing fast you know and Venmo is at uh 14% so all of the segments you know in terms of volume are growing kind of fast so it doesn't look like something will become a really small part of the mix. It seems like most things are growing you know in line but over time I think Venmo can be it's it hasn't been like monetized at all historically so I think that's a big potential as that grows in the mix and it's also the fastest grower and by the talks you know when you listen to to management it seems like Venmo is like the main focus point which which I understand because Venmo is a really strong brand you know you have Cash App and Venmo and if you can start expanding it more globally and and stuff like that I think Venmo is like the big potential for the future you know in terms of the payment volume mix. But yeah it doesn't seem like you know branded is you know growing that slowly just to challenge your own thesis maybe if you had to play devil's advocate against your own investment thesis the reason for holding PayPal what is the one thing or maybe a couple things that worry you the most and would make you sell the company if the if the market is actually right if if we start to see you know a decline of uh 6% per year or you know a decline at all that shows that okay the market saw something that I didn't and that would make me sell but as of right now if if I ask myself okay what what what is the worst case scenario right that's a good thing to ask yourself when you're making an investment like what's the worst thing that could happen to the business and then you you you ask yourself would that mean that the company is gonna grow negative 6% for the next 10 years as long as the answer is like uh no then I mean it is you know a clear buy for me personally because I think they do show that we're we're we're we're not talking about you know a pre-revenue risky company this is like a more like a legacy company undergoing you know a transition so people like like to say that um you know they are like remaking the whole company that's that's not what what what's happening they're making an already dominant company they're just making it better as I mentioned like the the margin profile is fine they're generating a lot of cash that's how they're able to you know to do uh stock buybacks without taking on debt you know you have other payment processes like Pfizer you look at how many buybacks they're doing they're like oh my god they're buying back so many shares and then you look oh they're taking out the debt to buy back shares at like expensive prices and the stock price drops 60% from when they started buying shares and you're like oh my god what is the company doing like no this is still like I wouldn't say it is like a high high quality like it's not a FICO it's not a SP Globe like it's not one of those you know juggernauts but it's still a good company good margins generates a lot of cash and their growth has slowed down since COVID and they're now finding ways to you know accelerate that growth so it is not so much that they're like remaking the whole business model like no they still process you know a fifth of all online transactions they're doing it at good margins as long as they keep growing I mean and we're not looking at a scenario where they're going negative six percent per year. You know I I just don't see a reality where that happens so I believe at current prices they make no sense. So yeah what would make me sell is if I see some structural you know decline across the whole business that makes me think like okay the market was right this company is heading you know for the you know dumps you know it is going to decline by this much you know every year they have no chance you know of actually growing at all then I would consider selling my shares but you know for now I'm fine being patient I mean I'm not I mean as I as we've been talking about they are positioning themselves for the next era of finance you know they are one of the first you know major players that are you know going into agentic uh AI transactions where you know you talk to a chatbot uh whichever you prefer they are partnering with Google with uh openai what what whatever use if you use Gemini Anthropic uh chat GPT whatever the the future of shopping is that you're going to be talking to a chatbot and you're gonna okay I'm looking for this like what are some recommended like I've I've been doing that in Japan actually I've been take taken to Grok I've been taken to uh Gemini for like okay I live here and this this is what I want to buy it's like a whole new market right I'm in Japan now I just moved from Sweden like a uh a month ago there are a lot of things that I need to buy like this um uh computer screen like I built this whole office you know in a month and I'm like okay I don't know this place I need to buy these things what are the recommended places what are the recommended products like okay which screens should I buy this what what I'm gonna use it for like they aggregate all of that for you and I had to go and buy it but if I could just you know in the chat with no click like okay yes buy done like that's the future of finance and they are positioning well for it and they are the only ones that are actually making major moves towards that I mean obviously Stripe is not public so we don't know you know all of the things that they're doing to the same degree as with PayPal but you know they are an early mover they are positioning well for the future they are starting to monetize parts of their business that you know had a lot of potential that was wasted potential like Venmo until they started you know doing stuff with it they are innovating in terms of their checkout to differentiate it you know uh this uh you know seamless guest checkout experience where you don't need to create an account for people to know what what your address is for people to know what kind of cards you use and stuff like that. So that's already happening. So everything that I see is telling me that no the revenue is not gonna drop by 6% every year. So for now I'm fine being patient. And as I mentioned if the stock price just stays here or you know even declines further that will just accelerate the pace of buybacks so they will even take the company private even sooner. So the the downside here is extremely limited is what I'm seeing. Any final thoughts before uh closing off yeah sure so you know as with any investment when I value it I try to forecast okay what is the business going to be doing what is you know potentially this event monetization going to mean so you know look at all avenues of growth cash flows and risk like as you do when you do you know intrinsic valuation and I get to something like you know over you know 100% upside just to reach fair value right and then I I I look at the valuation model so I'm I'm having over 100% upside to fair value and I didn't even value potential for the ads business which could be you know even larger than the payment processing business. As we mentioned their scale on consumer data is unparalleled so it is up to them to execute on that but the beautiful thing here is that I'm not valuing the potential of ads. So whatever ads produces I get for free as long as I buy you know under fair intrinsic value according to my model. So there's a lot of things that they're doing that I'm not even including in my you know valuation assessment that I will simply get for free. So the upside is you know potentially massive for for PayPal and I believe for for people that are wondering like okay when's the stock gonna move as I mentioned I I don't know I don't even look at stock prices you know day to day or even weekly maybe I'll check my portfolio once a month but I get that question a lot over on my sub stack you know where I share a lot of this research so I I get those questions like okay so what will it take for PayPal to move? So I want to hear your commentary first and then I'll share mine. So what do you think the market is waiting for? Because I think we can both agree that most people are aware that it is cheap and undervalued. Most people agree like or hate the company even people that hate the company like yeah it looks cheap. So what would it take in your opinion for the stock price to start moving?

SPEAKER_01 36:34

I I don't think there needs to be a lot of good things to happen uh I think for like a very average like 10 to 12% return PayPal doesn't have to do a lot of things very well. I mean they should um I think it can retire like three to nine percent of its float annually uh it's looking like they'll they might retire like nine percent this year and this should obviously drop over time by 2030 but um they should be able to lower costs over time as well uh with some AI animations maybe I think they have over 20k people so it's it's it's bloated for sure. It's very bloated yeah I arrive at like double digit EPS growth. There is so much optionality with this company like you mentioned the data vault Venmo is very unmonetized under monetized it still has like access to this incredible double sided network effect with merchants and consumers I actually really like the company so I I wanted to talk to you just to get your thoughts but I'm still looking for people who are listening to definitely give us pushback.

SPEAKER_02 37:46

Maybe we're wrong maybe so tell us share your thesis share your arguments so you know Aswat the Moldren that you know the dean of evaluation renowned professor within valuation he often talks about when you value scenarios to give it the three piece test so is it possible and then is it plausible and is it probable I challenge anyone to give me a probable scenario or even like plausible scenario of PayPal actually deserving to trade where it's trading today which is you know roughly negative 6% per year assuming they don't drop in margins. If you drop the margins to below like 10% then maybe it's like a negative uh two three percent per year but that's still like not growing so if anyone can give me a plausible scenario like it is not you know beyond the the possible stage because a lot of things are are possible like you shouldn't you know value that too much but give me a plausible or probable scenario for PayPal which actually deserves to trade at I think it's$56 currently I would love to hear that. I would love to see it because as we've been talking about we all love to be challenged and see like okay is really the market this wrong or am I wrong? So I always love to hear pushback but give me a plausible or probable scenario where it's actually starting to decline and uh I will definitely reassess my position in PayPal.

SPEAKER_01 39:21

You know there there are a ton of companies out there that deserve to be trading where they are but PayPal does feel like they have the optionality and they have the cash flow they have close to no net debt they can pay it off very easily besides they they earn interest on uh on on what they have um I mean Fast Lane Venmo the the ads business which we have no clue but it can be massive just look at Amazon ads which is growing like they're like crazy you know there's a lot to like there are a couple things to dislike uh the new incentives make a lot of sense they're not really focused on revenue growth anymore which can be skewed they're more focused on like the transaction transaction margin dollars which makes a lot more sense the the biggest green flag for me personally would be to see management buying in the open market.

SPEAKER_02 40:15

That would give me a lot of confidence to do so myself as well yeah yeah it's a strange one um why wouldn't they be doing that? So you know people often talk about well you can sell shares for a lot of reasons it could be tax implications you know scheduled sales you know things that are out of your control or necessary because you got on a war whatever they say that well they typically only buy stock of their own company using their own money for a simple reason and that is that they believe that it is undervalued and that it that it's going up and yeah the the insider transactions for PayPal are really puzzling like why wouldn't they be purchasing the company now that also goes against what we've been talking about in the beginning where we said that yeah they're kind of transparent this the CFO goes actively you know they goes to like Morgan Stanley conferences goes to all these different banks and talks about the company you know with an with an analyst and she gives like bearish remarks she's like honest like yeah we're seeing a slowdown in consumer spending so they don't seem to be the kind that would hype up the stock and then you can ask yourself okay is the reason because they want to you know retire more shares or do they want the stock to stay here or like what could be like the the possibilities are endless. So I typically when it well like when I value a business like this not an input like I don't really care about it but it is an interesting point of view for sure. Like why is this happening?

SPEAKER_01 41:46

Yeah and we shouldn't forget I mean the people working for PayPal are not necessarily like investors right if you have uh 200k worth of PayPal shares and you see it drop by 50% most employees most people that don't really understand how the market works and are even passionate about investing I would probably be worried as well like if I buy more now would it go down even further? I just think it would be a a vote of confidence for investors if like the management team Alex or uh the CFO even just bought some of their stock in the open market because uh they've been granted like quite a lot of stock I think uh close to like 10 million for just becoming CEO. So that I would just like to see it but we'll see we'll see what happens. Yeah.

SPEAKER_02 42:38

Yeah as for the stablecoin you you asked about earlier I for I seem to have forgotten to answer. The core part to my understanding I'm not a crypto expert but from from what what I can gather is that the the the sole purpose is to you know it it raises margins right the transactions that can be done over blockchain have the potential to be a lot cheaper you know in the back end so they're pushing you know towards that and uh to my recollection the stable coin that they have like Pi USD it is growing uh quite rapidly you know in the total market cap I think it's I don't have the latest metric in in my head but I've been hearing numbers like there are they've reached above you know 30 billion dollars in market cap. So was it 30 million? Well what wherever it is it is growing and the the purpose to my understanding is to increase margins. So yeah they seem to be you know on all the you know hyped fronts beat AI you know with the agentic pay beat ads with you know their potential ads platform that is you know hopefully that we get some real information about shortly with the stable coins with the blockchain so they seem to be doing a lot so it's just you know be patient and see how it plays out and the thing is even if these things don't play out the business is still like for what what it is It is undervalued, even if you just look at what they have today. So, yeah, um interesting company. I wouldn't say it's like one of those, you know, best companies in the market. Like it's not a Palantir that is completely dominant. It's not like a FICO that is, you know, 99.9% market share and undisrupted. Like it's not one of those. It's just like a massive company that has decelerated its growth and is being punished for it. Like it's still a quality company. I wouldn't say it's like a super high quality company yet, but time will tell where we we end up with PayPal.

SPEAKER_01 44:33

I am no uh stable coins expert either, but I believe the risk is like cutting out the middleman rights, where uh stable coins theoretically allow a user to send a hundred dollars to a merchant for uh like a cent in fees on a blockchain, but I I I don't think how does PayPal make money on that?

SPEAKER_02 44:54

So yeah, uh no. We'll we'll see as that. I think mostly used for you know remittances and stuff like that, you know, when you're sending money back home. Let's say that you know I have family in Sweden, but I work in Japan, so I you know I send remittances back to my family in Sweden, with you know, scenarios like you have a lot of people in Southeast Asia moving to like the US and they send money. So I think it cuts out a lot of the costs associated with that. I don't know if it's only in the back end or also if the user feels that. So, but to my understanding, the overall goal is back end. So the okay, so the the overall goal is to you know increase PayPal's margins for these kind of transactions, you know, over time as they you know start to build more uh solutions on top of it. But you know, we'll see. I'm no expert at all at that part of the business.

SPEAKER_01 45:46

Yeah. Well, thank you so much, uh Amir, for coming on the show again. Where can listeners find and learn more about you and your research?

SPEAKER_02 45:55

So the Substack is available at research.typefcapital.com. So all my research can be found there. Uh typically I cover you know high quality wide mode companies. I write you know extensive research on them. Most of the articles are you know partially behind a paywall, but uh still, you know, a lot of of the content is available for free. So feel free to check it out. Cover PayPal. You can read, you know, we we we only scratch the surface in this you know 15 minutes, but you know, the articles them themselves typically cover everything you need to know, you know, top to bottom of the business. So feel free to check it out.

SPEAKER_01 46:35

I can highly recommend Amir's research. I'll make sure to put the links in the description. It's high quality, it's it's it's real. You you gotta like uh depth, in-depth research because uh it goes deep.

SPEAKER_02 46:48

Yeah, it can be boring for uh for a lot of people. It's it's not a quick read mostly, and so are my YouTube uh videos. So I'm also available on YouTube, you know. I think it's a mere it's not uh like I'm not that active on YouTube, uh, you know, primarily on substance.

SPEAKER_00 47:02

I'll make sure to put it in the description.

SPEAKER_02 47:05

If if you like like 15 minute long videos of just staring at data in Excel and talking about companies, then maybe it's for you. For most people, I found out they don't enjoy that. Yeah.

SPEAKER_00 47:16

I wonder. Well, anyway, thank you so much for coming on the show and uh I'm sure we'll talk again, Amir.

SPEAKER_02 47:22

Yeah, thank you, thank you for having me.