I think PayPal (NASDAQ: PYPL) is becoming a value investment because it is growing like a weed.
The number of PayPal accounts grew from 244 million in 2nd Quarter 2018 to 277 million in 1st Quarter 2019 to 286 million 2nd Quarter 2019, Statista estimates. Thus, PayPal gained nine million accounts in 1st Quarter 2019.
Impressively, I estimate PayPal added 26 million accounts between 2nd Quarter 2018 and 2nd Quarter 2019. In addition, Statista estimates PayPal’s peer-to-peer (P2P) app Venmo had 40 million active accounts and a $24-billion net payment volume in 2nd Quarter 2019.
PayPal adds Utility Payments and Venmo Credit Card
PayPal is not resting on its laurels. You can now pay some utility bills through PayPal, Venmo, and PayPal Credit using the Paymentus Instant Payment Network (IPN).
I think Paymentus could add value to PayPal because it works with Amazon Pay. To explain, you could pay some utility bills through Alexa with Amazon Pay and the Paymentus IPN.
In addition, Amazon claims Amazon Pay users could pay utility bills in 95% of U.S. ZIP codes by 2020. Hence, I think Amazon Pay could drive users to Venmo and PayPal through Paymentus.
PayPal is also expanding its footprint in credit cards. PayPal and Sychrony Financial (NYSE: SYF) plan to launch a Venmo credit card next year, CNBC claims. They hope to get younger Americans who use Venmo hooked on credit cards by linking plastic to Venmo.
That market could be huge because around 25% of American Millennials use Venmo, Cornerstone Advisors and Q2 estimate. To clarify, Pew estimates Millennials (age 23 to 38) are America’s largest generation with 73 million members.
I think the credit card and Paymentus make PayPal a good growth stock. PayPal is a good growth stock because its management is constantly exploring new avenues for expansion.
Is PayPal Making Money?
The expansion is good news for PayPal stockholders because PayPal is making lots of money.
For instance, PayPal reported quarterly revenues of $4.378 billion on 30 September 2019. Moreover, Stockrow calculates PayPal’s revenues grew at a rate of 18.87% last quarter.
Those revenues generated a quarterly gross profit of $1.947 billion on 30 September 2019 that was down slightly from $1.961 billion in June 2019. Moreover, PayPal’s operating income fell from $705 million in June 2019 to $697 million in September 2019.
Plus, PayPal’s net income took a huge drop from $823 million on 30 June 2019 to $462 million in September 2019. Thus, PayPal’s growth is not generating as much money as it used to.
How Much Cash does PayPal Generate?
However, PayPal is still generating a lot of cash. For instance PayPal reported an operating cash flow of $1.096 billion on 30 September 2019. But that operating cash flow was down from $1.174 billion in June.
Meanwhile, the net cash flow fell from $1.035 billion to $940 million in the same period. However, PayPal’s financing cash flow grew from $996 million in June 2019 to $1.339 billion in September 2019.
Impressively, PayPal’s investing cash flow grew from -$1.097 billion in June 2019 to $623 million in September 2019. Therefore, PayPal is still a cash-generating machine.
Consequently, PayPal had $6.877 billion in cash and equivalents and $7.062 billion in short-term investments on 30 September 2019. Those numbers were up from $4.909 billion and $6.672 billion in June.
Thus, I estimate PayPal had $13.939 billion in cash and short-term investments in September 2019. Stockrow calculates PayPal had $11.581 billion cash and short-term investments in June 2019.
PayPal has the Cash to Pay a Dividend
Therefore, I conclude PayPal (NASDAQ: PYPL) is a cash-rich company that should pay a dividend. I think PayPal has the cash to support a dividend.
Unfortunately, PayPal currently pays no dividend, so it is not a good income stock. Conversely, I think PayPal is a good growth stock for ordinary people because of its high margin of safety and low price.
To explain, I think the growth and large amounts of cash give PayPal a big margin of safety that many financial companies lack. To elaborate, I think PayPal’s growth could continue for several more years or longer keeping the company healthy. In addition, PayPal has the cash to invest in new technologies and acquisitions to keep growing.
Finally, I think PayPal (NASDAQ: PYPL) is a bargain because Mr. Market undervalues and ignores it. For instance, PayPal shares were trading a $104.98 on 1 November 2019. I think that’s a great price for a growing and cash-rich tech company with a bright future.
If you want to add a technology growth stock that pays no dividend to your portfolio, PayPal is a good choice. I believe this under-appreciated Fintech giant has many years of growth and cash ahead of it.
Originally published at https://marketmadhouse.com on November 1, 2019.