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PayPal Holdings Inc (PYPL) Extended Graph Analysis

October 14th, 2019 Posted by Extended Analysis No Comment yet

PayPal is a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. They provide online payment system that serves customers worldwide through their Payments Platform. 

PayPal2

PayPal is available globally in more than 200 markets with its PayPal platform, including Braintree, Venmo and Xoom, enables their consumers to receive money in more than 100 currencies, withdraw funds in 56 currencies and hold balances in their PayPal accounts in 25 currencies.

About PayPal

PayPal Holdings, Inc was incorporated in Delaware in January 2015 and was established in 1998. The company’s initial public offering was in February 2002, the offering was for $5.4 million shares at $13 per share, registered under Nasdaq with a ticker symbol PYPL. The valuation of PYPL was about $800 million during that time.  At the launch date the price per share closes at $20. It became a wholly owned subsidiary of eBay in 2015 and it was purchased at the amount of $1.5 billion.  

Founders:

  • Elon Musk
  • Peter Thiel
  • Yu Pan
  • Max Levchin
  • Ken Howery
  • Luke Nosek

Corporate Headquarters:

2211 North First Street

San Jose, California 95131

Worldwide Operations:

12312 Port Grace Boulevard

La Vista, Nebraska 68128

Subsidiaries:

  • Venmo
  • Xoom Corporation
  • Braintree
  • Tradera
  • Simility
  • Swift Financial LLC
  • iZettle
  • PayPal Singapore Private Ltd
  • Paydiant
  • Paypal Argentina SRL
  • And many more

PayPal Standard Graph Analysis

1. PYPL CASH FLOWS

CASH FLOWS PYPL(1)

2014 2015 2016 2017 2018 2019
Net cash provided by operating activities 2,220,000,000 2,546,000,000 3,158,000,000 2,531,000,000 5,483,000,000 8,005,000,000
Net cash used for investing activities -1,546,000,000 -6,389,000,000 -4,999,000,000 -5,358,000,000 840,000,000 -5,680,000,000
Net cash provided by (used for) financing activities -51,000,000 3,079,000,000 2,038,000,000 4,084,000,000 -1,262,000,000 1,778,000,000
Capital expenditure -492,000,000 -722,000,000 -669,000,000 -667,000,000 -823,000,000 -804,000,000
Free cash flow 1,728,000,000 1,824,000,000 2,489,000,000 1,864,000,000 4,660,000,000 7,201,000,000

Facts:

  • The net cash provided by operating activities was $8 billion in 2019 trailing twelve months.
  • Net cash used for investing activities was -$5.68 billion in 2019 trailing twelve months.
  • Net cash provided by (used for) financing activities was $1.78 billion in 2019 trailing twelve months.
  • Capital expenditure was -$804 million in 2019 trailing twelve months.
  • Free cash flow was $7.201 billion in 2019 trailing twelve months.

Explanation:

  • Net cash provided by operating activities had a growth of 261 percent in five years.
  • Net cash used for investing activities composed of sales/maturity of investment, purchases of investments, investment in property and equipment and acquisition and disposition.
  • There was repurchased of treasury stock in a significant amount at the net cash provided by (used for) financing activities.
  • Capital expenditure was the purchase of property and equipment.
  • Free cash flow has a growth of 317 percent in the last five years. 
  • Operating cash flow increased 46 percent which contributed to 55 percent increase in free cash flows from 2018 to the trailing twelve months.
  • There was a cash payment of $324 million for income taxes at the trailing twelve months.
  • Cash paid for interest was $88 million in the trailing twelve months.

Interpretation

PayPal was efficient in maintaining cash for the operation of the business year-over-year. The company is liquid in the last five years.

2. PYPL BALANCE SHEET

PYPL BALANCE SHEET

2014 2015 2016 2017 2018 2019
Total Cash 2,201,000,000 1,393,000,000 1,590,000,000 2,883,000,000 7,575,000,000 7,575,000,000
Total current assets 17,189,000,000 20,323,000,000 23,054,000,000 31,081,000,000 31,453,000,000 31,453,000,000
Total assets 21,917,000,000 28,881,000,000 33,103,000,000 40,774,000,000 43,332,000,000 43,332,000,000
Total current liabilities 13,312,000,000 13,649,000,000 16,942,000,000 22,946,000,000 25,965,000,000 25,965,000,000
Total liabilities 13,669,000,000 15,122,000,000 18,391,000,000 24,780,000,000 27,946,000,000 27,946,000,000
Equity 8,248,000,000 13,759,000,000 14,712,000,000 15,994,000,000 15,386,000,000 15,386,000,000
Retained earnings 0 668,000,000 2,069,000,000 3,823,000,000 5,880,000,000 5,880,000,000
Total Debt 1,479,000,000 0 0 1,000,000,000 1,998,000,000 1,998,000,000
Working Capital 4,282,000,000 7,031,000,000 8,855,000,000 9,782,000,000 7,059,000,000 7,059,000,000

Facts:

  • Total cash was $7.575 billion in 2018.
  • The total current assets was $31.453 billion in 2018.
  • The total assets was $43.332 billion in 2018.
  • Current liabilities was $25.965 billion in 2018.
  • Total liabilities was $27.946 billion in 2018.
  • The total stockholders equity was $15.386 billion in 2018.
  • Retained earnings was $5.880 billion in 2018.
  • Total debt was $1.998 in 2018.
  • Working capital was $7.059 billion in 2018.

Explanation

  • Total cash represents 17 percent of total assets.
  • Current assets represents 73 percent of the total assets.
  • Total assets has growth of 98 percent in five years.
  • Current liabilities represents 93 percent of total liabilities.
  • Total liabilities represents 64 percent of the total liabilities and stockholders equity.
  • Equity represent 36 percent of the total liabilities and stockholders equity.
  • Equity has grown 87 percent in five years.
  • Retained earnings represent 38 percent of equity.
  • Total debt was 7 percent of total liabilities.
  • Working capital grown 65 percent in five years

Interpretation

The company is liquid and is able to meet its short-term obligations using its current assets in due time. Moreover, PayPal is capable of paying its total liabilities using its total current assets.The company is solid and healthy.

3. PYPL FINANCIAL RATIOS

PYPL FINANCIAL RATIOS (1)

2014 2015 2016 2017 2018 2019
Asset Turnover (avg) 0.39 0.36 0.35 0.35 0.37 0.36
Return on Asset (ROA) % 2.04 4.83 4.52 4.86 4.89 5.57
Return on Equity (ROE) % 5.36 11.16 9.84 11.69 13.11 16.11
Financial Leverage (avg) 2.66 2.10 2.25 2.55 2.82 3.00
Return on Invested Capital % 4.47 11.16 9.84 10.98 11.51 13.50
Interest Coverage 31.86 32.64

Facts:

  • Asset turnover ratio was averaging 0.36 in 2019 trailing twelve months.
  • Return on Asset (ROA) was 5.57 in 2019 trailing twelve months.
  • Return on Equity (ROE) was 16.11 in the trailing twelve months.
  • Financial leverage was averaging 3.00 in the trailing twelve months.
  • Return on invested capital was 13.50 percent in the trailing twelve months.
  • Interest coverage was 32.64 in the trailing twelve months.

Explanation:

  • Asset turnover has a ratio of 0.36, which means that for every dollar in assets PayPal had generated 36 cents. It indicates that the company is not very efficient in using its assets.
  • The company has generally good return on assets. It indicates that for every dollar invested in assets it returns $0.056.
  • Return on equity shows that the company generated $0.16 of profit for every dollar of shareholders equity.
  • Financial leverage indicates that for every dollar of equity the company had $3 in total assets.
  • Return on invested capital indicates it yielded a return of 13.50 percent.
  • Interest coverage indicates that the company is making 32.64 times more earnings that the current interest payments. PayPal is capable of paying interest on the current debt together with its principal.

Interpretation

The financial ratios of PayPal is generally considered good. The company is capable of paying its debts in due period. PayPal is profitable.

 

4. INCOME AND MARKET

PYPL INCOME AND MARKET (1)

2014 2015 2016 2017 2018 2019
Sales 8,025,000,000 9,248,000,000 10,842,000,000 13,094,000,000 15,451,000,000 16,342,000,000
EBIT 5,139,000,000 6,148,000,000 7,287,000,000 9,053,000,000 10,840,000,000 11,425,000,000
Net Income 419,000,000 1,228,000,000 1,401,000,000 1,795,000,000 2,057,000,000 2,510,000,000
Market Capitalization 0 44,240,000,000 47,626,000,000 88,485,000,000 98,722,000,000 121,892,000,000
Intrinsic Value 0 0 62,390,247,604 84,693,420,726 93,632,594,216 164,111,456,295

Facts:

  • Total sales was $16.3 billion in 2019 trailing twelve months.
  • EBIT was $11.4 billion in 2019 trailing twelve months.
  • Net income was $2.5 billion in 2019 trailing twelve months.
  • Market capitalization was $121.892 billion in 2019 trailing twelve months.
  • Intrinsic value was $164 billion in 2019 trailing twelve months.

Explanation:

  • Sales has grown 104 percent in five years.
  • Sales increases year-over-year at an average rate of 15 percent.
  • EBIT has grown 122 percent in five years.
  • Net income has a growth of 499 percent in five years.
  • Net income increases year-over-year at an average rate of 54 percent.
  • Market capitalization had increased 176 percent in five years.
  • Intrinsic value soared 924 percent in four years.
  • Intrinsic value was higher by 35 percent than the market value.

Interpretation

PayPal Holdings Inc was profitable and the bottomline was impressive and increases year-over-year.

5. KEY EXECUTIVE COMPENSATION

PYPL TOTAL EXECUTIVE COMPENSATION

DATA:

2014 81,170,000
2015 64,220,000
2016 46,240,000
2017 68,010,000
2018 74,741,987

Facts:

  • 2014 total executive compensation was $81.170 million.
  • 2015 total executive compensation was $64.220 million.
  • 2016 total executive compensation was $46.240 million.
  • 2017 total executive compensation was $68.010 million.
  • 2018 total executive compensation was $74.742 million.

Explanation:

  • 2014 total executive compensation represents 19.37 percent of net income.
  • 2015 total executive compensation represents 5.23 percent of net income.
  • 2016 total executive compensation represents 3.30 percent of net income.
  • 2017 total executive compensation represents 3.79 percent of net income.
  • 2018 total executive compensation represents 3.63 percent of net income.

Interpretation

Total executive compensation in 2018 increased by 9.89 percent from 2017.

PYPL Key Executive Compensation

2014 2015 2016 2017 2018
Key Executive Compensation 70,066,841 39,175,128 40,764,728 68,013,476 74,741,987
Daniel H Schulman, President and CEO 38,687,906 14,444,491 18,934,341 19,218,634 37,764,588
John D. Rainey/CFO and EVP, Global Customer Operation 0 10,682,546 9,934,708 8,631,687 9,524,190
William J. Ready, EVP and COO 31,378,935 2,558,955 6,158,155 26,188,353 9,524,190
Louise Pentland, EVP, Chief Business Affairs and Legal Officer 0 11,489,136 5,737,524 6,574,969 9,516,978
Gary Marino, Former EVP and Chief Commercial Officer 0 0 0 7,399,833 8,412,041

Facts:

  • Total key executive compensation was $74.74 million in 2018.
  • Daniel H. Schulman, President and CEO compensation was $37.76 million in 2018.
  • David D. Reiney, CFO compensation was $9.52 million in 2018.
  • William J. Reidey, EVP and COO compensation was $9.52 million in 2018.
  • Louise Pentland, EVP Chief Business Affairs and Legal Officer compensation was $9.52 million in 2018.
  • Gary Marino, former EVP and Chief Commercial Officer compensation was $8.4 million in 2018.

Explanation

  • The total key executive compensation represents 3 percent of net income in 2018.
  • Daniel H. Schulman total compensation represent 51 percent of the total key executive compensation in 2018.
  • David D. Reiney total compensation represent 13 percent of the total key executive compensation.
  • William Reidey total compensation represent 13 percent of the total key executive compensation.
  • Louise Pentland total compensation represent 13 percent of the total key executive compensation in 2018.
  • Gary Marino total compensation represent 11 percent of the total key executive compensation in 2018.

Interpretation

PayPal’s highest paid executive was Daniel H. Schulman, President and CEO with 51 percent of the total key executive compensation.

6. LOBBYING AND CONTRIBUTIONS

PYPL LOBBING AND CONTRIBUTIONS

2001 2002 2003 2015 2016 2017 2018 2019
80,000 515,000 60,000 380,000 958,460 887,850 819,800 432,210

Facts:

  • Lobbying in 2001 was $80k.
  • Lobbying in 2002 was $515k.
  • The lobbying in 2003 was $60k.
  • In 2015, the lobbying was $380k.
  • In 2016, the lobbying was $958.46k.
  • The lobbying in 2017 was $887.85k.
  • 2018 lobbying was $819.80 million.
  • 2019 lobbying was $432.21 million.

Explanation

PayPal is incurring a lobbying expenses since 2001, and it was not reported in the financial statement. The lobbying expenses come from the Senate Office of Public Records. The data for the most recent years was downloaded on September 19, 2019.

 

7. FINANCIAL STRENGTH

PYPL FINANCIAL STRENGTH (1)

DATA

Working Capital $7,059,000,000
Total Assets $43,332,000,000
Sales $16,342,000,000
EBIT $11,425,000,000
Market value of equity $119,527,000,000
Book value of total liabilities $27,946,000,000
Retained earnings $5,880,000,000


CALCULATION

RATIO SCORE RESULT
A Working Capital/Total Assets 0.16 1.20 0.20
B Retained Earnings/Total Assets 0.14 1.40 0.19
C EBIT/Total Assets 0.26 3.30 0.87
D Market value of equity/Book value of total assets 0.55 0.60 2.57
E Sales/Total Assets 0.38 1.00 0.38
Z-Score 4.20

Formula: Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

Explanation

Z-Score is a statistical measurement that compare data points from different sets of data to find correlations. This measurement by Dr. Edward Altman is a significant measure in determining the financial strength of the company because it relies on different weighted financial liquidity and profitability metrics to come up with the overall score. This measure indicates the probability of bankruptcy.

Interpretation

The overall Z-Score was 4.20, the grading scale for 3.00+ according to Altman indicates that the company will not declare bankruptcy. This measurement is not calculated for the purpose of estimating the company will declare bankruptcy but it helps in comparing other companies that have become insolvent.

CONCLUSION

The cash flows indicates that the company is liquid and the management is efficient in providing cash for the normal operation of the business. Moreover, the balance sheet is stable and income statement shows that PayPal is profitable and has not seen negative bottom line in the last five years. Therefore, the stock of PayPal is good for a Buy.

CITATION

https://www.sec.gov/cgi-bin/browse-edgar?CIK=PYPL&owner=exclude&action=getcompany&Find=Search

https://investor.paypal-corp.com/investor-relations

https://www.morningstar.com/stocks/xnas/pypl/quote
Researched and written by Criselda

Twitter: criseldarome

 

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