While growth will likely slow a bit in 2022 as the company works past some headwinds, we think PayPal has a clear path to strong growth over the next few years and that it can continue to generate solid growth over the long haul as it rides the secular shift toward electronic payments generally and e-commerce and mobile payments more specifically. Our $135 fair value estimate equates to 28.6 times our projected 2023 adjusted earnings per share forecast. In PayPal’s case, though, we think the effect is more mild, as the company is a relatively small piece of the overall electronic payment infrastructure. We typically think of a network effect as a very strong source of advantage, and one that often gives rise to a wide moat. However, the acquiring industry contains niches, and within the e-commerce space, PayPal is a clear leader, which we think places a narrow economic moat around its operations.
If viewed through the lens of the acquiring industry, PayPal has material scale, with over $1.2 trillion in annual volume, but falls well short of the volume handled by larger players. Payment processing of any type is highly scalable, as once a payment platform is established, there is little incremental cost to additional transactions.
#Paypal stock buy or sell driver#
Venmo, its rapidly growing but still unprofitable peer-to-peer platform, probably won’t be a major driver anytime soon and its future is difficult to predict, but it has potential to create upside above our fair value estimate. On the other hand, PayPal remains a preferred partner in the online space and could leverage this into a growing presence in point-of-sale transactions. Services like Apple Pay represent competition. Longer term, we see a mix of competitive opportunities and threats that create a fairly wide range of outcomes.
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