PayPal (NASDAQ: PYPL) stock is up over 30% in the last month. After posting excellent Q2 results, it takes the spotlight as my stock of the week. With that in mind, I think PayPal could rebound in the current stock market recovery.

Investment pays off

After the fintech firm reported its Q2 numbers, PayPal saw its stock rise by more than 10%. This was because it beat a number of analysts’ estimates on both its top and bottom lines. In fact, the company managed to surpass its own guidance on the majority of metrics!

Nevertheless, the firm’s EPS saw a substantial decline. However, this was because of lower transaction margins from eBay, and the last year’s numbers getting a boost from the release of unneeded allowances for bad loans. Taking those factors into consideration, EPS stayed flat on a year-over-year (Y/Y) basis.

Pals bring quality

Since PayPal revised its goal of bringing more quality than quantity, it’s seen user growth decline, but PTPAA has gone up steadily. This was evident in this quarter’s numbers, with minuscule NNA, but robust PTPAA growth.

The growth can be attributed to two reasons. The first is the rise in core daily active users, which has seen a rise of more than 40% since 2019. This is crucial for PayPal because 80% of its transactions come from 30% of its most active users. The second is the continued growth of Venmo, which ended up driving more than 50% of PayPal’s revenue growth in Q2.

As such, management provided a decent outlook for the rest of the year. The Nasdaq-listed firm now expects Q3 revenue of $6.8bn, with an upwardly revised non-GAAP EPS of approximately $0.95. For the full year, it expects 10% revenue growth, with a non-GAAP EPS of approximately $3.92. The board also forecasts to grow TPV by 12%, add 10m more accounts, and have a free cash flow of at least $5bn.

Long way to grow

So, is PayPal stock worth a buy? Well, all signs seem to point towards yes. Aside from the excellent numbers and guidance provided, the impact on its cost savings are yet to be realised. Interim CFO Gabrielle Rabinovitch mentioned that PayPal expects $900m worth of cost savings in FY22, and a further $1.3bn next year. She also reiterated that the payments processor expects operating margin expansion of at least 0.5% starting in Q4. And with core markets yet to be fully penetrated, PayPal still has a long way to grow as it expands its digital wallet features to more regions worldwide.

Nonetheless, it’s worth noting that PayPal sits on $10.6bn worth of debt. But with no maturities for the rest of the year and margin expansions on the horizon, I’ve no doubt that incoming CFO Blake Jorgensen will be able to navigate through its debt pile without too much hassle.

Finally, the company saw its take rate remain flat at 2% (yoy), which is great news as PayPal continues to maintain its transactional margins while seeing TPV increase and growing its market share. Therefore, I think PayPal has a position on my portfolio with an average price target of $119.29.

The post Stock of the week: PayPal outperforms in Q2! appeared first on The Twelfth Magpie.

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John Choong owns shares of PayPal. The Motley Fool UK has recommended PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Fed is no Pal

Just like PayPal stock, US retail sales figures have been steadily declining since February. In fact, retail sales came in at -0.3% in May, on a month-on-month basis. This is an indication that consumer spending is decreasing as a result of higher interest rates.

The US Federal Reserve is committed to increasing interest rates until inflation retreats back down to 2%. Consequently, several analysts are pencilling the odds of a recession at 50%. If this were to happen, I expect the suffering for PayPal shareholders to get worse.

With less money flowing throughout the US economy, the platform stands to earn less from payments and transfers. This is because higher interest rates means higher borrowing costs, limiting the flow of cash around the economy.

More than just PayPal

Nonetheless, PayPal has a couple of interesting developments that could make it a fortune in the long term, as the fintech group has several brands to it. These businesses are seeing encouraging growth and progress. The list includes PayPal itself, Venmo, Braintree, Paidy, Xoom, Honey, iZettle, and Hyperwallet. I’m extremely upbeat about the group’s future prospects beyond its main business. But in particular, I have my attention focused on Venmo’s prospects as an American mobile payment service.

The company has lined up partnerships with Amazon and Doordash. These big firms are expected to integrate Venmo into their payment options later this year. If successful, I envision these collaborations to bring a flood of cash to the top line for PayPal.

Quantity over quality

Having said that, it’s worth noting that the core business still remains susceptible to harsh economic headwinds. Analysts have revised the stock’s average earnings per share down from $1.24 to $0.97 for the year.

Not to mention, its Venmo partnerships are yet to come into effect. For one, management has been silent on when the Amazon partnership will take place. Secondly, Doordash is yet to agree to business terms and conditions.

However, what concerns me most is its profit margins, which have been on a decline over the last four quarters. PayPal has to compete with the likes of Wise and Western Union, having lost market share over the years. Its current take rate is 2%, which is higher than Wise’s. Therefore, for it to continue being competitive, it’ll have to cut down its margins in order to retain/grow its transaction and customer volumes.

Thinning profit margins (Despite increasing volume) shows that PayPal is losing its pricing power and market dominance. As such, I won’t be buying more PayPal stock for now. Instead, I’ll be holding onto my shares in hopes that the Amazon partnership bears fruit.

The post Should I buy PayPal stock in July? appeared first on The Twelfth Magpie.

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John Choong owns shares of PayPal at the time of writing. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon and PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Despite some attempts of recovery, the rout among growth stocks has continued in recent weeks. This is due to the rising cost of living in society and the consequent rising interest rates.

Rising inflation lowers the value of the future cash flows of companies, while also reducing the discretionary income available for consumers. These are major issues for growth stocks.

Rising interest rates also makes it more expensive to issue debt, which can stunt the growth of these companies. Therefore, the Nasdaq, an index that consists mainly of growth stocks, has sunk over 25% year-to-date and over 16% in the past year.

This has also caused significant disruption in my portfolio. But instead of panicking, I see several opportunities to buy. Here are two companies that I feel look too cheap at current prices. 

A Latin American e-commerce giant 

MercadoLibre (NASDAQ: MELI) stock soared during the pandemic, as the transition to e-commerce in Latin America quickened. However, the post-pandemic performance of the company has been far worse, and since its highs in February 2021, the MercadoLibre share price has fallen over 60%. In the past year, it has fallen around 44%, in line with many other growth stocks. I believe the sell-off has now been overdone. 

For one, financial results have continued to impress. In the first quarter of 2022, net revenues were able to soar around 67% to $2.2bn, while income also equalled $139m. These beat expectations, demonstrating that the company’s post-pandemic future remains extremely bright. Further, this has left MercadoLibre exceptionally cheap, in comparison to its historical prices. For instance, it currently trades on a forward price-to-sales (P/S) ratio of under 4, whereas last year the P/S ratio exceeded 10. 

However, this sell-off has reflected the macroeconomic uncertainties and the slow-down in e-commerce. Recently, Citigroup also noted that as the group continues to grow its fintech business, it can expect more loan losses on credit cards, which could hurt profit margins. But while this is a risk, I am still encouraged in the growth of the fintech business. This is because it offers another diversified source of revenues. Therefore, at current prices, I will continue to add more MercadoLibre shares to my portfolio. 

An even more beaten-down growth stock

If you thought MercadoLibre stock has been considerably beaten down, the PayPal (NASDAQ: PYPL) share price chart looks even worse. Indeed, it has now fallen nearly 70% in the past year, making it among the worst-performing growth stocks around. This poor performance is due to evidence of slowing growth.

But there are several reasons why I am tempted to buy more PayPal shares at current prices. For example, although growth has slowed, Q1 revenues were still able to climb 8% and they are expected to climb 12% in 2022. These seem very realistic targets. In addition, the fintech is now attempting to cut costs, which will hopefully equate to rising profits. Nonetheless, with a price-to-earnings ratio of under 30, I feel that investors are not expecting any considerable profit growth. This indicates that PayPal stock may have dipped too far. 

Therefore, although I am slightly concerned at the rising competition in the fintech space, I am likely to still add more PayPal shares to my portfolio. 

The post Down over 60%, here are 2 bargain growth stocks to buy on the dip appeared first on The Twelfth Magpie.

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Stuart Blair owns shares in MercadoLibre and PayPal Holdings. The Motley Fool UK has recommended MercadoLibre and PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More pals

PayPal managed to surpass expectations with a growth rate of 8% year on year (Y/Y), as revenue came in at $6.5bn. Its earnings per share (EPS) was also in line with consensus, at $0.88 on a non-GAAP basis. Additionally, total payment volume (TPV) was up 15% Y/Y. The number of transactions per account was also up 11% on annual basis. Moreover, the fintech company added 2.4m net new active customers. PayPal’s Venmo business also saw a 12% increase Y/Y in TPV. These are all good signs.

A price to pay

While the figures for Q1 were great, the numbers behind the curtain make me worry as an investor. PayPal saw a 32% decline in free cash flow as the company incurred a -$0.20 EPS loss from lower transaction margin dollars from eBay. This was made worse by a loss from taxation (-$0.07 EPS) and credit losses (-$0.06 EPS). As for the elephant in the room, Russia, the loss of revenue from the region created a -$0.03 EPS loss from the suspension of transactional services.

To make matters worse, PayPal’s assets decreased as liabilities went up. Although the firm’s balance sheet is still in a rather healthy state, it could take a wrong turn if finances are not managed efficiently. The imminent departure of CFO John Rainey may not help.

More importantly, PayPal saw its take rate continue to decline along with its transaction margin losing 5%. Take rate is the percentage PayPal takes from each transaction as a form of commission, and is its main stream of income. With competition rising from other fintech companies such as Block and Wise, PayPal has been forced to lower its take rate to stay relevant. Although the discounted take rate has encouraged transaction volume, it’s only a matter of time before it starts impacting profit margins further.

Blue chip

On the brighter side of things, there are a couple of expansions that should help PayPal’s traffic. The introduction of PayPal Later in Japan and Germany, as well as Savings to PayPal Wallet in the US should bring some much needed momentum to PayPal’s growth. Nevertheless, 8% earnings growth isn’t ideal for a supposed growth stock.

So, is the PayPal growth story over then? It could be. The biggest fintech company in the world continues to lose market share to its peers. Venmo, seems to be the firm’s only growth prospect, but a TPV growth rate of 12% isn’t going to boost the PayPal share price to its highs of $300 anytime soon. Not to mention, the firm refuses to disclose the proportion of income it generates from its respective businesses in greater detail, which leaves me concerned as a shareholder, as this usually means that revenue isn’t meaningful enough. As such, I will be holding to see what comes of the Amazon partnership later this year.

The post PayPal earnings matches Q1 estimates. What now? appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
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John Choong owns shares of PayPal at the time of writing. The Motley Fool UK has recommended PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A Latin American e-commerce giant

Since it announced that it was raising around $1.55bn through a share issuance midway through November, the MercadoLibre (NASDAQ: MELI) share price has crashed 35%. This is despite the fact that the new shares were issued at $1,550 per share and had a very minimal dilutive effect. As such, its current share price of around $1,050 seems way too cheap and the sell-off looks overdone to me. This is especially true considering that the company is performing excellently, and over the Christmas period, I feel it can improve further.  

Indeed, in the Q3 trading update, the company reported revenues of $1.9bn, a 73% year-on-year rise. This means that revenues have totalled nearly $5bn so far in 2021. Further, I feel that, especially considering the Christmas boost, revenues will be able to reach $7bn for the full year. This puts MercadoLibre on a forward price-to-sales ratio of around just 7. Considering the firm’s excellent revenue growth rate, this seems far too cheap. For example, Amazon has a price-to-sales ratio of around four, yet its revenue growth rate is around five times slower. Like other good tech stocks, MercadoLibre also has diversified revenues due to its fintech business, MercadoPago.

As such, despite the risks of inflation, and the recent rights issue continuing to depress investor sentiment, I think MercadoLibre is way too oversold. I’ll continue to buy this stock on the dip.

A very established tech stock

PayPal (NASDAQ: PYPL) is one of the leaders in the fintech industry, yet it has fallen over 40% from its recent highs, and 16% over the past year. This has mainly been due to fears of rising competition, which includes companies like Square and SoFi. But while such competition does pose a risk, PayPal still seems in an excellent position to continue growing. Indeed, in the recent trading update, it was able to add another 13.3 net new active accounts. It also announced a partnership deal between its subsidiary Venmo and Amazon.

Therefore, I believe that PayPal has maintained a competitive edge over its competitors. As the fintech industry is growing quickly, it should also be in a strong position to capitalise. In fact, it’s already aiming for $50bn in revenues by 2025, around a 100% rise from this year. If it can achieve this, profits should also soar. This demonstrates that the share price still has plenty of upside potential. Accordingly, I’m willing to buy more shares in this established tech stock.  

The post The Nasdaq just fell another 2%. I’d buy these 2 tech stocks right now appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stuart Blair owns shares in MercadoLibre, PayPal Holdings and SoFi Technologies Inc. The Motley Fool UK has recommended Amazon, Apple, MercadoLibre, PayPal Holdings, and Square. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Market leader

PayPal (NASDAQ: PYPL) has gone from strength to strength over the years, with revenues increasing from $10.8bn in 2016 to an expected $25.4bn this year. Over these past five years, the PayPal share price has also managed to rise around 370%. But things have taken a slight downturn recently and over the past six months, the shares have fallen 27%. They’re also down nearly 10% over the past year. This is due to fears that growth is starting to slow amid rising competition.

But while the rising competition is certainly a risk, PayPal is still a market leader in this growing industry. Indeed, in its Q3 trading update, the company still saw year-on-year revenue growth of 13%. It also added 13.3m net new active accounts, demonstrating that customers are still choosing PayPal over other fintechs. A partnership announcement between its subsidiary Venmo and Amazon, is also likely to boost profits when it starts next year.

I equally believe that, like some other fintech stocks, rising inflation is not actually a bad thing for PayPal. In fact, PayPal earns most of its money from taking a percentage of total payment volume on the platform. Therefore, as prices go up, it will also take in more money from these transactions. Accordingly, I’m tempted to add more PayPal shares to my portfolio on the dip.

A new fintech stock to the market

SoFi Technologies (NASDAQ: SOFI) is less well known than PayPal, yet it’s growing at a rapid pace. In fact, in the Q3 trading update, it announced that it had nearly 3m members, a 96% year-on-year increase. It also had net revenues of $277m. This means that FY revenues are expected to total over $1bn, a 60% increase year-on-year. As such, this shows that the company’s growth is rapid, and is the reason why I’m optimistic that SoFi is a real disruptor in the fintech industry. There’s also a high chance that it will be granted a bank charter in the next few months, which should help the company grow revenues at an even quicker pace.

The one concern I have about SoFi is its valuation. Although it’s managed to reach positive adjusted EBITDA, it’s still posting heavy net losses. With a market cap of $14bn, it also has forward price-to-sales ratio of 14, far higher than some other fintech stocks, including PayPal (which has a P/S ratio of under 9) and Square (a ratio of around 8). But SoFi is also seeing quicker growth, and therefore, I’m not overly worried about this high valuation. I may buy more shares for my portfolio.  

The post Forget traditional banks! I’m buying these 2 fintech stocks instead appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stuart Blair owns shares in PayPal Holdings and SoFi Technologies Inc. The Motley Fool UK has recommended Amazon, HSBC Holdings, Lloyds Banking Group, and PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

PayPal: disappointing forward guidance

The PayPal third-quarter trading update was by no means awful. Indeed, the company’s growth continued, and net revenues of $6.18bn were 13% higher than last year. The group also added 13.3m net new active accounts, ending the quarter with 416m active accounts overall. Although revenue was slightly lower than analysts were expecting, the growth rate was still strong. Net income also increased 7%, ahead of expectations.

Nonetheless, it was the forward guidance that spooked investors. In the fourth quarter, the company expects revenues of around $6.9bn, but analysts had been expecting it to be around $7.2bn. This underperformance for the next quarter is partly due to the end of stimulus payments and ongoing global supply chain disruptions. These are both risks that require consideration, and reasons why the PayPal share price fell so significantly.

Even so, I’m still tempted to buy on the dip. For one, PayPal announced that its subsidiary, Venmo, is launching a partnership with Amazon through which shoppers can use Venmo as a checkout option on the site. This could help boost profits. As such, while the tech company trades on a lofty price-to-earnings ratio of over 40, there does still seem upside potential. If the shares fall further, I may buy.

Palantir: a growth stock beating expectations

Palantir was an odd case because the company, which makes software and analytics tools for the government and other companies, beat expectations. Despite this, the shares still fell around 10%.

In the Q3 trading update, revenue was able to reach $392m, which was a 36% increase from last year. While this was a slightly slower growth rate than the 49% recorded in the two previous quarters, it was still good, which demonstrates the potential of this growth stock. The company also managed to add 34 net new customers.

So, why did the stock fall? Well, there are a few potential reasons. First, the company said that its operating margin will shrink in the fourth quarter and will be 22%, rather than the 24% analysts were expecting. This shows that the firm’s operating efficiency is starting to worsen. This is a risk that requires consideration.

Further, Palantir shares are very expensive. In fact, using its expected revenues for 2022, the shares trade on a price-to-sales ratio of around 30. This is three times higher than PayPal. Therefore, while there’s clearly a ton of potential with Palantir shares, its priced too highly for me. This is a stock I’m watching from the sidelines.

The post PayPal and Palantir shares crash! Should I buy these growth stocks now? appeared first on The Twelfth Magpie.

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Stuart Blair has no positions in any of the shares mentioned. The Motley Fool UK has recommended PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.