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Payments platform Paypal hit a peak market cap over 350 billion in 2021. But a sharp fall in the share price means the company is now valued around 92 billion.

With 10.9 billion in cash and investments and almost the same in debt, the enterprise value is 91.3 billion.

Revenues over the last 12 months total 27 billion dollars with 2.3 billion in net income and 2 dollars earnings per share.

That means the stock is now valued at 3.4 times revenue or 40 times earnings. And the stock also generates significant free cash flow, almost six billion dollars over the past year.

So why has Paypal stock fallen so sharply? The simple answer is that the stock got too expensive. Historically, Paypal has traded at a PE ratio around 45. In late 2021, the stock was trading at over 87 times earnings. Then in the second quarter of 2022, the company posted its first quarterly loss since going public.

Historically, Paypal has grown revenues around 18% per year and earnings per share 36% per year. But based on guidance, revenue growth this year will slow to 8.5% and earnings per share will fall back to 2019 levels.

The decline in performance prompted a $2 billion investment from activist investor Elliott Management, and the company is now working on reducing costs and buying back shares.

This slowdown is partly a result of consumers returning to physical stores rather than shopping online. But it’s also a result of intense competition. For example, in 2021, Ebay officially ditched Paypal as its payments partner, preferring dutch rival Adyen.

And there’s no shortage of other competitors in the form of Square, Stripe, Skrill, Google Pay, Apple Pay etc.

Paypal started as a safe way to make payments online. But in 2023 it's just as secure and easy to use your credit card as it is to use Paypal.

#stocks #investing #stockstobuy #stockstowatch #overlookedalpha

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