Morningstar | PayPal Continues to See Strong Growth in 2Q
Overall, we think PayPal’s second-quarter results show the company sustaining its strong growth trajectory. We will maintain our narrow moat rating and $68 fair value estimate. While we like the company’s long-term prospects, we continue to believe the current market price is overly rich.Total payment volume was up 29% year over year, marking a slight deceleration from recent quarters. However, stripping out currency effects, growth on this front was in line with recent results. PayPal continues to see solid increases in active accounts and payments per account, which were up 15% and 9% year over year, respectively. We think the company’s ability to expand on both fronts helps to solidify its long-term prospects.
Transaction margin for the quarter was 56.0%, a slight decline sequentially but in line with results over the past year. Operating margins improved to 14.8% from 13.7% last year. We think the company’s growth and the scalability of the business model will allow for solid margin expansion over time.
During the quarter, the company bought back $500 million in shares; it has repurchased $2.3 billion so far this year. Given that we think the shares are overvalued, we don’t see the pickup in share repurchases as value-creative, but in our view, the aggression on this front demonstrates that PayPal is operating from a position of strength, especially as it announced $2.7 billion in acquisitions during the quarter. PayPal’s strong growth and profitability and its capital-light business model should add up to significant flexibility in terms of capital allocation in the years to come.
PayPal Holdings is a technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants worldwide. The company's combined payment solutions include its PayPal, PayPal Credit, Braintree, Venmo, Xoom and iZettle products and services. PayPal's payment solutions enable the company's customers to send and receive payments. PayPal helps merchants and consumers connect, transact, and complete payments, whether they are online, on a mobile device, in an app, or in person. The company provides proprietary payment solutions accepted by merchants that enable the completion of payments on the company's Payments Platform on behalf of its customers.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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