Will Paypal continue to rise despite Hedge Funds Selling?
PayPal Holdings, Inc. (PYPL) saw strong momentum over the past year, significantly outperforming the S&P 500 and rising by approximately 150.0% compared to the S&P’s gain of about 19.8%.
PayPal is an Fintech company with a technology platform that enables digital and mobile payments on behalf of merchants and consumers and supports online money transfers between friends and family. PayPal rebounded from a dip in performance around March of 2020 when the coronavirus pandemic gained traction in the United States. However, the poor performance quickly reversed as investors soon realized the benefits the pandemic would have as consumer shopping habits shifted online.
PayPal’s Venmo is attracting millions of customers and evolving from peer-to-peer payment applications into diversified platforms that offer many inexpensive consumer finance products and better access than banks do today. In this white paper, we present original research on Venmo, enabled importantly by Venmo’s public API data.
Many businesses were forced temporarily to close with consumers adhering to social distancing guidelines. There was a shift to online technology for money management, including online shopping through digital payments. Despite the company soaring to new revenue heights, PayPal did make a pullback in late 2020.
We expect more than 200 million digital wallet users in the US which, if valued like bank customers at maturity today, could represent an $800 billion opportunity in the US equity market.
Why Hedge Funds Are Selling
Despite PayPal’s impressive gains, hedge funds and institutions were selling in the third quarter of 2020. Hedge funds decreased their aggregate 13F shares held to approximately 226.6 million from about 237.5 million. Of hedge funds, 49 created new positions, 153 added to an existing holding, 25 exited, and 221 reduced their stakes. Institutions decreased their aggregate holdings to about 967.7 million from 980.0 million, a mild decrease of 1.3%.
Hedge Funds Activity on PYPL (13F Filings)
Revenue Is on the Rise
Analysts have positive views on PayPal with year over year growth ranging from 15.8% to 20.8% over the next four years. Revenue is forecast to reach approximately $43.2 billion in 2024, up from $25.6 billion in 2021. Predicted increases may bring earnings to $11.37 per share by 2025, up from $4.55 for the fiscal period ending in December 2021.
Optimistic Views
Analysts appear enthusiastic about the stock. Mizuho Securities USA’s analyst, Dan Dolev, believes that the company is becoming the “ultimate financial ‘super app,’ that transcends across payments, commerce, and financial services.” PayPal recently announced the upcoming launch of a new cryptocurrency business unit, and this also has analysts’ attention. Keefe Bruyette & Woods Inc’s (KBW) analyst, Sanjay Sakhrani, shared similar sentiments and noted that the cross-generational behavior shift towards eCommerce creates the opportunity for sustainably higher earnings power.
Source: Singular Capital, The Federal Deposit Insurance Corporation (FDIC) Most recent data from 2018.
Based on statistic presents the occupancy expenses of FDIC-insured commercial banks in the United States from 2000 to 2017, occupancy expenses has been consistently increasing for Traditional Brick-and-Mortar banks. In 2018, the average occupancy expenses is $550k Per month to maintain one Bank Branch.
Singular’s View
We believe PayPal’s recent growth brings an encouraging outlook, as supported by future earnings estimates that show continued growth through 2025. Amidst the pandemic, this digital payment leader offers investors an opportunity as it continues to see increased demand for its services and Paypal is well positioned to capitalize on the potential 200 Million digital wallet industry ripe for disruption.
Digital-only offerings such as Square Cash App, Paypal’s Venmo, Chime and other digital wallets are benefiting more from this change. The Main reason for Explosive Growth in Digital Wallets is lower customer acquisition costs