Paypal’s Revenge?

I try not to bet much on turnaround stories. I already have Disney in my portfolio, so I’m not interested in betting more on rosy promises made by CEOs. To buy PayPal today, it feels like one would need to bet on a “Midas Touch”.

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I’m not going to ramble on about PayPal’s strategy or its competitive advantages, but I will use The Buycaster to put some structure to those (mental) ramblings.

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It turns out that PayPal scores very well in The Buycaster. In other words, The Buycaster says that it is rational to expect PYPL to deliver a decent return over the next 5 years. But doesn’t that depend on what PayPal’s management can deliver?

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Yes. But The Buycaster quantifies for us what they need to achieve for us to consider buying the stock.

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Of course, the rest of the dashboard goes into detail explaining and validating the numbers above. But the point is that now critiquing the CEO’s strategy and execution becomes less nebulous and much more grounded in numbers.

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You can browse through PayPal’s strategy slides to surmise that their main pitch is to take advantage of some built-in network effects and engineer a scenario where PayPal is the preferred check-out medium for both merchants and consumers (you and I), online or offline. It’s not going to be easy. I’m sure Shopify won’t roll over.

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But I wonder: let’s assume that management’s strategy and execution are not flawless; let’s assume they’re partially successful. In that scenario, do you think 8% revenue growth over the next few years is par for the course? They’ve been clocking that despite being “in the doldrums”.

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Neither The Buycaster nor a subjective “gut-feel” about a company’s growth strategy should be used in isolation to make investment decisions. Please use both. It’s a tango between quantifying “what we need to believe to buy the stock” and “is the management team’s pitch convincing enough to believe what we need to believe”?

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Hope this helps.

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Many Happy Returns,

Saurav