To me, from the secular standpoint, pressure on the company's operating profits is an indication of the intensifying competition. Transaction margin compression also took place, according to the management. Pressures on the take rate for branded checkout also undermined profitability. The softening dynamics in branded checkout growth likely contributed to a decline in the transaction revenue. The management cited challenges in achieving the expected growth in its branded checkout services, with a notable deceleration after an initial rapid acceleration. The operating margin shrank YoY from 17.1% to 16.0%.Īccording to the latest earnings call transcript, there were several unfavorable factors that weighed on the profitability. Despite revenue growth, profitability metrics narrowed. The latest quarterly earnings were released on November 1, when the company topped consensus estimates. That said, I reiterate my "Strong Buy" rating for PayPal. My valuation analysis suggests the stock has the potential to double in price, which by far outweighs all the risks and uncertainties. PayPal is also well positioned to leverage its data wealth amid the secular shift to machine learning to improve decision-making. I consider the management's target to achieve high-quality growth to be doable given the company's strong reputation and global presence. However, revenue is still growing even in this harsh environment, and the management appears focused on delivering profitable growth. Investor sentiment deteriorated mainly due to profitability metrics compression, which indicates that the company is losing its competitive edge to bears. (NASDAQ:PYPL) did not age well since the stock price declined by 11% over the last quarter, which is underperformance compared to the broader U.S. My initial bullish thesis about PayPal Holdings, Inc. My valuation analysis suggests the stock is more than two times undervalued. The company has several strong competitive advantages, which will highly likely allow the company to build more value for shareholders. stock price has declined by 11% in the last quarter, which provides even better buying opportunities.
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