Our original Paypal Thesis

Published on 07/27/21 | Saurav Sen | 3,432 Words

The BuyGist:

  • This is our original Paypal Thesis from February 2020, just before the pandemic took full flight. 
  • We're re-posting this as an article to lend some context and color to our updated Paypal Thesis. 
  • This is a re-posting of our thesis in the old format.
  • Updated Thesis in new format is available here for subscribers.

Thesis and Summary

Paypal started the cardless movement and is now competing with many “newbees”. But it remains a dominant company that’s aiming to be a “network-of-networks”, which could significantly increase revenue as cash flow in the next 2 years.

  • Core Competency: Technology to make digital payments cardless, frictionless.
  • Product Differentiation? Need more. Aiming to become the “network of networks”.
  • Revenue Growth? Solid. 20%-ish a year, due to growth in number of Active Users.
  • Competition/Threats? Card Networks, Banks, Neobanks, Big Tech firms.
  • Economic Moat? Inherent nature of product discourages switching; plus Network Effects.
  • Strategy? Good. Thinking in terms of ecosystem to widen Moat. But too acquisitive.
  • Return on Equity? Mid-teens. Need to find a way to improve margins.
  • Sustainable Free Cash Flow? About $7 billion. Translates to roughly $120 per share.
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