We continue to watch PayPal as it has been a fantastic idea in the simulated Best Ideas Newsletter portfolio since it split from eBay. Rivalries are intensifying in the digital payments space and the company will have to replace lost business with eBay in coming years, but we still like the idea. We also view Bitcoin and other cryptocurrencies as more an opportunity than a threat for many digital payment providers.
By Brian Nelson, CFA
On June 19, PayPal (PYPL) announced it would acquire Hyperwallet for $400 million in cash. We think the PayPal executive team was impressed with the technology at Hyperwallet, which faciliates the ability to “pay almost anyone almost anywhere in the world.” As PayPal fuses this technology with its own, we think PayPal only increases its value-add to merchants and consumers in providing an integrated end-to-end solution. The addition of new offerings/technologies to the PayPal platform will be vital as rivalries are intensifying, perhaps no better illustrated than with Dutch payments company, Adyen.
What draws us strongly to PayPal is its pace of growth and its tremendous free cash flow generation and balance-sheet health. As has been the case with Square (SQ), we think the evolution of cryptocurrencies such as Bitcoin (BTC, GBTC, COIN) within the global financial system will only provide further growth opportunities for PayPal. Braintree, which is a part of PayPal, had partnered with Coinbase nearly four years ago to accept Bitcoin payments, and we think PayPal is well-positioned to capitalize on increased cryptocurrency adoption. As with the digital payments industry, in general, it is vast enough for a great many number of winners, and we think PayPal will be one of them. The high end of our fair value estimate of PayPal is near-$100 per share.
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Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.