Chit Chat Stocks - PayPal (Ticker: PYPL) Not So Deep Dive

Episode Date: June 6, 2023

PayPal Holdings, Inc. (PYPL) is a leading digital payments platform that facilitates secure online transactions and money transfers, catering to a wide range of individuals and businesses globally, and driving the shift towards digital commerce. At the end of the month, we will publish an Arch Capital episode that will cover the company: Airbnb. Listen closely as Brett and Ryan go through the history, financials, and future prospects of PayPal. Enjoy the show! ****************************** Subscribe to our Substack to receive free show notes and charts that go along with every episode: https://chitchatmoney.substack.com/ Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Contact us: [e-mail] Timestamps Company Background | (2:55) Industry | (21:16) Management & Ownership | (28:06) Earnings | (34:50) Balance Sheet | (40:14) Valuation | (44:27) Our Analysis | (45:33) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. Welcome into Chitchat Money. My name is Brett Schaefer, and I'm joined by my co-host, Ryan Henderson. Today is our Tuesday not-so-deep-dive episode, where we analyze

one stock by covering its business model, ownership, financials, future growth opportunities. and today we are covering PayPal to kick off our payments month. Well, you could really call it digital payments month because I guess all the stocks now are digital payments. In this episode, we are going to break down the basics of the company. And I guess for anyone listening, we should maybe explain what these shows are because I think when we cover a show or excuse me, a company like PayPal or a stock like PayPal, I get a little bit worried because a company like this is covered by so many good analysts. We'll have links in our newsletter, which for reference, sign up to that. It's free. It's in our show notes. There are a ton of good analysts that

we're going to link to from the stock market nerd, Mostly Borrowed Ideas, Elliot Turner. Oh, I'm missing. There was four big ones that we were covering. Either way, we're going to link to all those. Sorry if I missed anyone there. They cover it extremely well. They know the business much better than we do. But the point of these episodes are for people that have not heard of the company before, who want an introduction to the company, and want to learn along with us, because we choose these stocks as ones that are new to us, where we want to learn the business model, we want to learn the update on its financials, what its trajectory has been, how cheap it is, all that good stuff, and then basically decide whether we want to do more

research and decide whether it is investable. So it's kind of turning over a rock saying, okay, here's what it is, but I should have a fair warning here. If you know PayPal extremely well. I doubt you're going to get a tremendous amount of insight here, but if you don't know your opinion, yeah, but if you don't know the stock at all, like we did before last week, I think you can learn a ton. Before we get into that, yes, I want to say we're going to reference a bunch of charts in this episode. We're going to reference a bunch of graphics. If you want to see those graphics, subscribe to the newsletter. It is free. It'll be in the show notes. It's on Substack, Chit Chat Money. Anything else, Ryan? I think, why don't we get started?

Unless you have anything else. So Ryan, this is a behemoth of a company with a lot of different products, but why don't you try to go through the important ones of how PayPal runs its business, how it makes money, how it relates to the merchants and consumers in digital payments? Yeah, this was quite a task this week to try to break down the full business because they are, PayPal is really a consortium, I guess. I've heard people call them a chameleon of very different payments related businesses. And they're trying to intertwine them in some ways, but really I think a lot of them are quite different. And so the best way I've seen someone segment the operations of PayPal was our friend, Mostly Borrowed Ideas. He basically broke it down.

and I think other people do this too, where it's core payments processing, which is the PayPal button. That's what I'm going to call it. And we'll talk about why it's called that. And then everything else. That's kind of the basic brass tacks way to think about PayPal. And so let's start with the PayPal button. You will often see this referred to as branded checkout. This is currently the most important part of the PayPal business as it accounts for roughly a third of all PayPal's transaction volume and an estimated two thirds of gross profit. The reason that this accounts for the highest percentage of gross profit is that on the

PayPal button specifically, payments made through there, they generally have a higher take rate than a lot of their other payments that they facilitate. So the reason it's called the PayPal button is because there are a lot of different kinds of transactions that happen here. So you can't really just call it PayPal checkout because there's a lot of different types of PayPal checkout. So let's use an example. Let's say you're going to buy cologne off of Ulta Beauty's website. When you get to the checkout, you'll see basically, in this case, I went and did it just to kind of try and test it out. I was going to say, the listeners want to know, did you actually do this?

Was this a hypothetical purchase or did you buy the cologne? I did not. Yeah, this is really important to the thesis. No, I did not buy the cologne, but I was curious kind of, all right, what's a big retailer? And I went to Ulta and I tried this out and there were literally two options. Check out, which I didn't click on, but I would assume it has some sort of a embedded, maybe Stripe payment system or pay with PayPal. Those are the two buttons you could choose from. Pay with PayPal. That is kind of the typical PayPal button type transactions that would plug

into your PayPal account. If you're a PayPal user, if you have money on PayPal, that is a really high margin transaction for PayPal. However, if you don't and you're paying through PayPal, but it's really an ACH transfer from your bank account, it's not quite as high of a margin. So that's one use case. And I guess I haven't seen the breakdown on this, but my thought is it's probably a lot of desktop type payments, especially now as we start to move more towards, we're going to talk about Apple Pay and Google Pay here in a little bit. A lot of people I'm guessing use PayPal on their desktop online transactions, but there's also some other forms. So cross-border transactions, You get kind of a higher take rate from that because there's more complexity involved in

shipping something or payments across to different currencies. There's BNPL, buy now, pay later transactions are available through there that I believe gets included in the PayPal button or branded checkout. And there's a lot more. And then, like I said, the difficulty in trying to define any of these is there are so many different types of transactions and so many different take rates that vary depending on the various transactions. And they don't get very good financials on all the different segments. So there is a lot of guesswork. We're not going to do a lot of really deep analysis on making a model,

especially because when we're doing an audio or video file, or excuse me, format, that's not very, it's hard for anyone to follow. So again, in the newsletter, we're going to link to some people that make some complicated models that really try to estimate all the breakdown of this. And I would say, go to those if you're really interested in learning that further. Yeah. I think the most important thing to simply understand here is that the PayPal button is... The button section is a highly competitive space, increasingly competitive, I'd say. And it is the highest margin. Well, it's the biggest margin driver or profit driver for PayPal currently. It makes up, like I said, about two-thirds of their gross profit based on

estimates. And then according to Morgan Stanley, 83% of the largest 475 digital merchants accept PayPal. If you think about it from a merchant's perspective, PayPal has, what is it? 400 million basically consumers or active accounts that you can kind of plug into. They're known for safe and secure payments. So it kind of just makes sense to give consumers that alternative. But that is the basic PayPal button side of the business, everything else. And I'm not going to go through everything else because there are so many different parts of the business, but the most important one here is Braintree. Braintree, you're also going to probably hear this referred to as unbranded checkout. So this is the second most important part of the business. Today, Braintree

is a, and there's a lot of kind of fintech terms that you'll hear, but full stack payments processor. that is basically the way of saying that it competes with Stripe and Addian to process and authenticate payments. And unlike PayPal, core PayPal, they're not really going after the consumer side of things. It's really just trying to drive merchant adoption to be, like I said, that payment, full stack payments processor. And they really, I think, got their start and maybe still today are fixated or focused on mobile transactions. So I believe one of their big customers was Uber in the early days. I don't know if they've kept that one. Airbnb, I believe was another one. Yeah. For anyone that looks at these three companies, you could see on

a lot of their websites, like Addy, and they'll say Uber's a customer. A lot of them have multiple processors because they can compete with each other for who can process the best payments. PayPal does state that Braintree is the best on basically payment approvals, which is very important for large merchants. And for context of size, Braintree processes about $400 billion in annual payment volume. That's a third of PayPal's total payment volume, but it's also about, so Stripe and both process about $800 billion annually, so twice the size, but Braintree is actually growing much faster. And from what I understand, Braintree used to not be a full stack payments processor.

They were more of, I kept seeing this term tossed around, which was gateway. And then they would pass through, basically there was less of a take rate on that. So this has helped kind of drive processing volume for Braintree. And it's also allowed, I think, merchants to consolidate a lot of the different payments functions to one provider. So that's Braintree. I would just maybe think about it as sort of a white label solution. So unbranded, it does not have the PayPal notoriety. If you're a smaller business, maybe you want the PayPal button because it makes consumers feel a little more secure in processing a payment through you. But if you're a bigger merchant, you kind of have the sense of confirmation that people aren't as

worried about paying online across your platform. So maybe then you'll take Braintree, has lower take rate, and you can potentially save money that way if you're the merchant. And so there's kind of those two different avenues for them. But like I said, the important thing to understand is Braintree growing really fast, lower margin, PayPal button growing much slower, high margin. And so that's kind of the dichotomy you have right now if you're a PayPal shareholder. And I know that's a very simplified way to think about things. The other thing, the other business I think is important here is Venmo. So Venmo, most people are probably familiar with it.

Maybe I say that because I'm in the Pacific Northwest and it's very popular around here. I believe the Cash app is more popular in kind of the Southeast. But this is really a peer-to-peer payments app. they've added some additional functionality as of late, but the core kind of function is if I'm a friend, let's say I forgot my wallet. My other friend, we go to lunch, he pays for it. I send him whatever, 12 bucks after the meal via Venmo. And it's really kind of a verb at this point. They say, why don't you just Venmo me? That kind of thing. It's very common. People pay their rent through there. I think it's kind of a wonderful business too, because

we've alluded to Apple Pay and Google Pay potentially eating away at branded checkout for PayPal. But with Venmo, you're doing a lot of cross phone type, cross mobile operating system payments. And so Apple Pay doesn't work as much there if you're trying to send someone money because you don't know for sure whether they're going to have an iPhone. And so Venmo just kind of, I think has maybe a solid moat there. The other thing that's important to mention is PayPal really only collects a fee when consumers transfer the money back to their bank accounts and do it expedited. So if they just say like transfer with no fee, you can do it in three days, I think is kind of the basic one. But if you want it to be an instant transfer,

you know uh paypal or venmo takes a fee last two i'll talk about is zoom with an x so xoom is kind of what it sounds like paypal bought zoom for just under a billion dollars in 2015 it's another peer-to-peer money transfer service but it's more for international payments it's kind of hard to tell if they've really had a whole lot of success here this is for anyone that hasn't followed paypal this has kind of been a theme throughout their history they make slightly unrelated transactions pay a decent amount to do them and then if it starts to fade or maybe it isn't quite as successful as as they were expecting it's just talked about a little less it's not broken out uh they kind of shroud their financials um and and you can't uh i guess you're not able to

get as good of a glimpse on the economics of those businesses if they're not doing that well so that part kind of sucks but that's faded a little bit as of late the last one i'll talk about because I think this can be helpful when it comes to Braintree's growth, is HyperWallet. So this is, if you think about Braintree, that is, if you're a merchant, you're having people pay you, Braintree is helpful in that process. This HyperWallet is a payout solution. So for merchants, let's take Airbnb as an example. You accept your payments via Braintree. You can pay out the actual host via HyperWallet. Now you could pay them via an ACH transfer, which typically takes three days or longer. But if you want to pay those out quicker, HyperWallet, as its name

suggests, allows you to do that because PayPal basically fronts the cash. They kind of have that working capital advantage. Now, I'm going to stop there. I will mention the other businesses they own, but I don't think they are that important to the business. They have Zettel, Honey, Patey, Happy Returns, ChargeHound, Simility, and more, but they're all relatively small. the economics are unknown, and they get lumped into either peer-to-peer payments or other merchant services. So there's not really any telling what the size is there. That's the basics of the business. Am I missing anything, Brett? No. We are going to talk later, though, about any sort of analysis on, especially when we talk about the activist investors and when the

listeners understand that, spinning off potentially some of these businesses, selling them off, or just shutting him down but yeah why don't you go into the history next which i think this is a famous silicon valley story but maybe just go through the basic notes because it's one that's told a lot i wonder since there's so many characters here i wonder how true it is because there's a lot of these people that are known to want to get their their um how do i say it their side of the story, right? Of this one. Yeah. It's a story that's been told many times and I think told in a lot of different ways, depending on who you ask. So I maybe won't go into, I'll talk about it briefly, but there's a lot of better places I think to go and learn

about the history. The reason it's so controversial is because members of that founding team have gone on to start the likes of YouTube, LinkedIn, Yelp, Palantir, Affirm, Tesla. Well, they didn't technically start Tesla, but SpaceX, I mean, Elon Musk, I guess was, you know, he's one of the most controversial people in the world. He was a part of this founding team in some ways. So I'll go through the history briefly, but if you're really interested in how the company was founded, I recommend reading the book, The Contrarian by Max Chafkin. It's more of a biography about Peter Thiel, but it goes through, I mean, those years of founding PayPal were extremely formative in Peter Thiel's life. So they go through that thoroughly. But anyways, the PayPal story

started in 1998 when Peter Thiel, Max Levchin, and several others founded a company called Confinity. Apparently Confinity was marketed as a software security program for Palm Pilots. However, they struggled to really find a whole lot of success there. So they switched their focus to sending and receiving secure, big emphasis there, electronic payments. And they really kind of used tokenization before it was popularized as a way to kind of secure those electronic payments. And I'm not, I'm no expert in tokenization, but that emphasis on security was a big sell because when e-commerce was really starting to take off in kind of the early 2000s and stuff

like that, finding a secure way to send payments was difficult. And so that's where PayPal's value proposition really shined. However, in 2000, they merged with x.com, which at the time was run by Elon Musk and they ended up naming Musk as their CEO. I'm not sure exactly what Musk's vision was initially for x.com apparently it was more of like a digital banking kind of all encompassing thing however apparently the team at confinity uh kind of butted heads with musk or they thought his vision was off whatever it was um so when he was on his honeymoon they went to sequoia capital which was their big investor at the time and replaced him with peter teal as the CEO shortly after PayPal, which was growing really quickly, went public. They raised a bunch

of money only to be acquired by eBay about five months later for $1.5 billion. This was, when you look back at the tech landscape today and really the venture capital realm broadly, this was a very pivotal moment, I think, for Silicon Valley because that gave essentially seed capital to all very influential or very outspoken, maybe I should say VCs in today's world. So I don't know. It's kind of this pivotal moment where a lot of these early founders, young 20-something-year-olds got a whole bunch of money and they were able to invest it across a bunch of different businesses. But I digress. I guess from there, I think the only other important parts to talk about was it was incubated by eBay. So it was under the business,

but it was still operating on its own and it was allowed to make its own acquisitions, which it did. And in 2013, they acquired Braintree. Braintree also contained Venmo. So those were not two separate acquisitions. Venmo was really small at the time, but they ended up acquiring both and having big success with both and then two years later carl icon pushed ebay to spin out paypal um so they ended up doing that paypal began trading independently around this time dan shulman was named the ceo and the year since i would say they've been rather underwhelming i think the stock's up i want to say like 80 percent since 2015. the numbers have been solid, but there, as we'll go through, there've been some missteps. There's been a lot of stuff

people have complained about. It seems like they had a really great business that maybe they mismanaged a bit. I think a lot of shareholders would agree with that. Yeah. I mean, if you look at the financial since the 2015 spinoff, free cash flows compounded at a really healthy rate. I can't remember what it was right now, but active accounts have compounded at a healthy rate. The growth has been there. I think it's just maybe relative to what people thought its potential was. It hasn't been there, but I mean, still, you think about a lot of the gripes and the complaints of shareholders today, I think it's down 80% maybe from its all-time highs. The stock is still up 80% in the last eight years. So not horrible returns, but I think

underwhelming for a lot of people that have been investors during that timeframe. Yep. All right. I will move to industry and competition. I guess Brian has a note here that they did get an activist investor from Elliott Management in 2022. I'll talk about the ownership as well. So if you look at the industry, there is a reason that people are excited about this company or were excited about the opportunity, gave it a high multiple, and basically all its peers as well is because the digital payments industry is immense and has steadily grown for the last few decades. Analysts expect it to continue gaining share, and then it will really, as you, well, I'll describe it for anyone that doesn't know, it will grow alongside

the global economy if eventually it hits basically maturity where all payments are digital. So in the US, the digital payments volume is estimated to be about $2 trillion in 2023. I So I'll say as a note, this means digital, so not just a credit card payment at a store. So it's purely digital payments. It's ones that are either through a mobile device or on your computer, and it's not just cashless. So that's a different market. But the analysts, this is just statista. So take it with a grain of salt, expected to continue growing to $4 trillion annually, give or take, by the end of this decade.

So there should be a continued tailwind for all these companies. And I should say as a side note, these companies that earn their revenue as a percentage of payment volume, like Ryan was talking about above, PayPal, Visa, MasterCard, Adyen, all those other ones are perfectly or maybe almost perfectly hedged with inflation because they're taking a percentage rate of the payment volume. So if things are costing or more expensive, then they're going to earn that as well. Now, if you want to go through competition for PayPal, it is difficult because they have a lot of different businesses, but I think you need to separate it into two segments, which are merchant customers and then the consumer customers, and they sort of interact because when you're a merchant, you may have the PayPal button, but it's the consumer that's clicking, okay, I want to use PayPal, I want to use ShopPay, I want to just input my credit

card, et cetera, et cetera. So the merchant competitors are the payment buttons and the payment processor. So like Ryan mentioned with Braintree, the big competitors there would be Adyen or Stripe, or some of the legacy providers, I believe JP Morgan has one, stuff like that. And then on the button side, there could be something like ShopPay, could be Apple Pay, could be Amazon Buy with Prime. That's a new one that's kind of rolling out from Amazon to go all throughout all these websites, especially e-commerce, which PayPal is a huge market in. And really, essentially, it's any method of paying for a product that is not using the PayPal checkout experience, which would, again, either be the branded button or the unbranded button, which essentially is Braintree. Now, the consumer competitors, which would be competitors to the PayPal mobile app, the PayPal money transfer service, or basically just the PayPal consumer stuff, and then also the Venmo consumer stuff, you have Cash App, you have Apple Pay, you have Google Pay, you have Zelle. Basically, either digital wallets or peer-to-peer transfer systems, or actually, I forgot to put these in here too, the foreign exchange and remittance services like Wise or Remitly that seem to be eating Zoom's lunch. Today, the card networks, which Visa, MasterCard, American Express, Discover, Big Four, are more partners with PayPal than competitors as PayPal has really gone way away from saying we're going to circumvent the card networks and they've made them much more friends than enemies if they're enemies at all anymore. They work with them, especially American Express, to do partnerships, to do deals, to do reward

point crossover, stuff like that, to really increase spending volume across their customers. And when they're flowing through PayPal as a part of the payment processor or whatever relationship they have with them, that helps the card networks, right? And then it helps PayPal, it boosts everyone's revenue. So long story short, any competitor of PayPal, and this is kind of how I like to think of is a company that wants to steal a customer touchpoint where PayPal can be a toll road and earn a take rate on payment volume. This is true across the consumer, but more importantly, across the payment processing

side, which is where they make the majority of the revenue. And then finally, I'll have a graphic here in the newsletter that talks about an example of PayPal's fees to a merchant versus shop pay. And I want to use it as an example about how over time, take rates for digital payments companies or just payment companies in general have slowly calmed down, which is great for consumers, right? And it seems like it's a competitive industry that there's a lot of people that are trying to vie for growth. One way to do that is to charge less to people. But importantly, that means that volume growth is going to be vital for a company like PayPal to obviously continue growing their revenue and continue having strong margins. Anything else, Ryan, do you want to hit on competition? We can talk to competition.

i guess the other the only other thing i'd say is that when you look at apple pay and google pay i'm not i'm not sure if it's 100 true with google pay but apple pay you can tap your phone it's the same product yeah yeah kind of a merchant point of sale system they and they are selling to the merchants too apple pay is because um with less success but yes yeah i think it's like 47 of big merchants right now um except apple pay um but the there is some anti-competitive things uh i guess going on there which is apple has not opened up that tap to pay functionality for the paypal wallet it's only for your apple wallet and they kind of say that there's security reasons and stuff like that and i'm not sure i buy it but um it's that's one of the things i think that are

that's leading to the growth in Apple Pay versus potentially PayPal because you know, if you're a consumer, you don't have to bring your card. You can just bring your phone somewhere and you can tap to pay at a point of sale system using your phone. If you have your PayPal wallet,

you can't necessarily do that. So it's harder, right? You'd have to use a QR code. People don't do that much in Western markets. And yeah, I would say that Google Pay is pretty much the same. I don't know exactly if Android restricts that, but I'm guessing they do. But I think Google Pay and Apple Pay are essentially the

same product. All right. Management and ownership. This one's interesting. I think it's very important for this company as well. So the CEO of PayPal is Dan Shulman. He's been leading the company since the 2015 spin that Ryan mentioned. One thing all investors are watching right now, and I think is maybe the most important near-term thing, is the major executive turnover that has happened in recent years. Shulman just announced his intention to step down as CEO, and they will be looking for a new CEO to hire in 2023. And for clarification, he is still running the business today. So it's business as usual. I think that's probably better, right? That he's doing it business as usual. He's going to go keep going. I wonder if this is kind of a deal they worked

out with the activists who were going to push for him to leave. And he was like, no, no, we'll do it maybe less combatively. Who knows, though, that's behind closed doors. So they're going to have a new CEO. It's going to be very important to see who that is. I think it's a big unknown. I would vote for someone from Adyen personally, but hopefully we'll see. And the CFO position is also up in the air. And part of this wasn't really their fault that he's got unlucky. They recently hired the ex-CEOO and CFO from Electronic Arts, which personally I thought was a great hire. But unfortunately, he had to step down for personal reasons, the way they made it sound. It seems like it could have been health related, but we don't know. They kind of got

unlucky there. He had to leave pretty immediately. Now they have an interim CFO. So some uncertainty in that position as well. So we don't know who the CEO is going to be at the end of the year. We don't know who the CFO is going to be at the end of the year. It seems like there are some people making jokes on Twitter that this was a headless horse that no one really knew what was going on. The question I have here though, because I think this is definitely a part of why the stock's down a lot. Does this uncertainty around new management make you want to own the stock more or less? Obviously we incorporate that the valuation is depressed because of it. Well, something I find interesting is that a lot of people had rumored that Bill Reddy

would be the next CEO. Bill Reddy was the, I don't know if he was the founder, but he was definitely the CEO of Braintree when they acquired it. And apparently he's a really good leader, someone a lot of people like. Although I find it interesting that Elliott Management, they took their stake in PayPal, I think in 2022 initially. Bill Reddy was still with the team at that point, I believe. I might be getting some of these dates wrong. And then Elliott Management took a stake in Pinterest and reallocated Bill Reddy to the CEO role of Pinterest, it feels like. So wherever Elliott goes, there seems to be a new CEO and it seems to be whoever they want. So we'll see.

But yeah, it is kind of a headless horse. It does give me cause for concern. I don't – I think Dan Schulman gets a lot of hate. and maybe deservedly so, but some of the numbers have looked pretty good under his time there. Yeah. Yeah. It has been bad. All right. Let's move to executive compensation. You will never guess, but the team gets a base salary, annual bonuses, and long-term stock awards as per the consultants. In 2022, the annual bonuses were based on revenue and non-GAAP operating margin targets, and the long-term equity awards. Well, I'm not exactly, some of it could be cash, but basically

the long-term awards are based on revenue and free cashflow compound annual growth rates over three-year periods. For any reference on what these targets actually were, they missed revenue and operating margin targets last year. The three-year targets for the long-term ones were 16.5% for revenue at the midpoint and 13% for free cashflow at the midpoint. They've hit right around both those targets in 2022. So again, the short-term annual one they missed, but the long-term awards they hit. Generally, I kind of like these terms. Seem fine. Non-GAAP operating margin isn't great. The big change I would like to see though, and I would hope the activists change this as well, especially because they're trying to lean into the buyback,

is changing it from free cashflow to free cashflow per share. And I think these incentive choices are important to kind of look at and spend time with this because they show what PayPal executives care about and what they may kind of push the scale towards when running the business. And you can decide for yourself whether you agree. Cough, cough, acquisitions. Potentially, yeah. So we'll see if when the new management comes in, if we get an improved governance structure,

not just the structure, but just improved governments, improved incentives like a lot of shareholders are asking for, whether some of these change to better maybe per share metrics. The ownership table is actually a bit quirky. For some reason, it's whale wisdom. And whale wisdom is not perfect, but it's a good source, I think. It says that Elliott Management only owns 0.1% of the stock. So I don't know if that's actually accurate because the reports were that they had a $2 billion stake. I wonder if they sold it down It's just a big TBD for me. And then, yeah, as you might expect, because this was kind of taken over and spun out again, the insider ownership is extremely low at 0.13%, owned by a ton of index

funds, Vanguard, BlackRock leading the way here. The only interesting one I had was that Comprehensive Financial Management. It has a 2.6% stake and they are a concentrated advisory firm with something like 20 to 30 positions. So pretty interesting there, I guess, but we're not, I just, I'm wondering what the activist is going to do here. And I'd say, for example, here, we have no activists on the board yet either.

So I wonder if when they get this new management team in, then they're going to come to agreement on what they're going to do with the board of directors. But I think the summation here is there's a ton up in the air. Yeah, I think, Um, maybe, uh, maybe Elliott management is doing that, like, uh, that call option thing where you don't have to record how many shares you have kind of thing, but then you can take

a big stake. And it could be a whole separate investment fund, but again, all reports indicate that they have a stake and they have a relationship with this management team at the moment. All right, Ryan, let's move into earnings. What have the financials look like? What did you think were the relevant numbers over the last few years? Yeah, I'll just give some... I know people probably hate when I just run through number after number. So I'm going to do that anyways, but this is to kind of give some context on the

size of the business. So in 2022, they did $27.5 billion in total net revenue. That was growing 8% year over year, but it was growing slightly quicker in constant currency. On that 27 and a half billion in revenue, they did just over $5 billion in free cashflow that was up slightly year over year, a little less in operating income. They do pay out $1.3 billion in stock-based comp on a yearly basis. So that's the primary difference, I guess, difference between cashflow and gap numbers. However, that stock-based compensation did decline year over year, I believe. They kind of say it's going to continue. They hope it's going to continue to go down, right? Throughout the next 20 years. Yeah. I mean, they had layoffs. So I think

that usually helps reduce stock-based compensation. And there's probably a little less pressure on trying to hire tech talent right now, which maybe means they don't have to give out as generous of stock-based compensation. And then they repurchased $4.2 billion in stock last year. So that was a decent reduction in the share count. And I'll kind of go through some more of the math towards the end on what I think they can reduce it by. But as for the most recent quarter, they grew payment volume at 10% year over year. Active accounts were up just slightly versus the year before. Keep in mind, so they report a 433 million active account figure, 35 or so million of those are merchants. The other remainder are all

consumers yeah yeah and it's on a trailing 12 month basis right so there is a bit of a lag where it might mask some weakness in a recent quarter i i don't like that definition i wish they would do more of a they do share like monthly active user is growing which i think is great but i wish they would give more of a quarter number or a monthly number stuff like that yeah it kind of reminds me of like nintendo's annual plane user figure like it can be dated you made one transaction over the last 12 months, that doesn't mean a whole lot. So anyway, but the transactions per active account grew 13% year over year. Now it's been growing steadily at really a healthy rate. However, I would argue that Venmo has been growing and a lot of those transactions are

revenue lists. So now they might, because if your active account is a Venmo user, that's not as valuable as an active account PayPal button user. You know what I mean? So there's some nuance to all these numbers, but they did raise their full year earnings per share guidance. The only thing I find funny is if the stock continues to tank and earnings estimates don't change, their earnings per share figure, their guidance had better go up because their buyback is going to be reducing way more shares. So it's kind of funny if they raise earnings for sure yeah they like playing the expectations games i like to i think and i think listeners you can do this or not i like to just completely ignore um guidance yeah and i mean they i don't

think they really have a good grasp on where their business is going to be in a year to be honest but i remember them talking i think it was them that they talked about like there's so much variability right now in online spend coming out of COVID that it's kind of up in the air, not to mention the consumer seems to be tightening in America. So it's kind of difficult for them to forecast what their revenue is really going to look like. So that's another reason, I guess, to not, I guess, take their guidance with a grain of salt. My question for you though is, okay, They are generating $5 billion in free cash flow, roughly, on a yearly basis right now. Do you think five years from now, that will be higher or lower?

And on a per share basis or nominal? Let's go nominal. And then we just assume that they buy back with most of their free cash flow. I think higher. And that's why we're going to get to the valuation when I see that question. And I'm like, yeah, I think definitely it'll be higher. I go, why don't I buy this stock? Right.

I know it might seem like a kind of a dumb question. Like, okay, it's, you know, it's grown for the last decade and it's still growing. Why would earnings be lower? But the valuation almost tells you that the market doesn't think they'll be earning more in five years. Or it won't be materially higher. They won't be compounding at a good rate. Yeah. Anyway, let's talk about balance sheet. They actually have a really unique balance sheet. And it's something that sometimes we go through this and it's just completely irrelevant. It doesn't matter that much. But for PayPal, it's pretty unique. So with PayPal accounts,

sometimes customers will hold cash on those PayPal accounts. According to management, these customer cash balances tend to have a duration of nine to 12 months. This means PayPal is able to invest that cash in short-term treasuries. That has not been a big driver of the business when interest rates were at zero, but it's going to be moving forward, I imagine, as long as rates stay high. So I'll talk about that in a second. But as for the asset side of things, they have $11 billion in cash and short-term investments. They hold just over $35 billion in customer funds, and then they have $4.6 billion in long-term investments. Sometimes I roll my eyes at long-term investments, but half of these are just longer dated available

for sale debt securities, and really only the remainder are what they call strategic investments, which is kind of, I don't want to say they're venture capital arm, but they will buy other public equities. And I'm pretty sure the majority of that is MercadoLibre, which has actually been a pretty timely purchase. And Uber, less timely, but yeah. Yeah. And they don't, I looked for it and they don't really break out what it is in their 10K.

Maybe they have to file a 13F, so maybe it's somewhere in there. But anyway, so call it $15 billion in cash and then $35 billion in customer funds that they can also invest. The liability side of things, they've got $10.3 billion in long-term debt. It's all fixed rate notes issued throughout 2019 to 2022. and the interest rate on that is in kind of the two and a half to 4% range. It really kind of varies. And I didn't do the weighted average math, but I would just call it, I would peg it at 3%. So fairly low cost debt. The majority of that debt is due after 2027. And apparently, Brett,

i saw this only because you posted it this morning they took out a bunch of japanese debt as well yeah i didn't do the conversion to see how much but those as we all know the japanese banks like to give debt away for basically free so more power to them maybe that means the yen's gonna rip because they're very bad at some of this stuff but who knows yeah that also you know I don't know. Maybe that's an indication of a higher intention to juice for PayPal's management team. But I think the thing to understand here is they've got a net cash position of more than $5 billion. They now have a wide array of interest-bearing assets that they own. So PayPal's quarterly interest income now eclipses their interest expense from their

debt. In the most recent quarter, they earned $72 million in net interest income. The year prior, they had $82 million in net interest expense. So it's a huge swing. And it doesn't include everything because some of their, I believe maybe their customer ones are included in that other revenue category as well, which is why that grew 40% year over year in Q1. I believe it was 40%. I don't have the numbers in front of me. So they're earning even more and it's not fully disclosed. That's the corporate balance sheet one, which is great. But then also that customer balance too, is going to boost that other revenue, which will get fully reflected this year and should be a nice little driver if interest rates stay

high. Yeah. And the other thing I find interesting about that is a lot of people, and I don't know this for sure, but it seems like a lot of people value this on sort of an EBIT basis or an earnings before interest in taxes, which was maybe the right thing to do to make yourself feel better when they were paying out interest, but now they're collecting interest. So their net income could potentially, well, the free cash flow might potentially be eclipsing that EBIT figure.

There's just some real income that they're not accounting for in that calculation. Yeah. That's moving to valuation. That's the ones I'm going to use. I'm going to use operating income. So look at their market cap. Like Ryan mentioned, we have a net debt position, or excuse me, negative net debt position. So market cap as of recording about 71 billion, but we bring down that net debt, we get an enterprise value of about $66 billion. And then on the 2022 operating income, we're trading about 17 times. They do have a margin and let me just, we'll have it in the newsletter for anyone that kind of want to looks at this trajectory is their operating margin last year on a gap basis was only 14%.

But given their historical numbers, given the unit economics, we should be able to see 20% if they can get these efficiencies that they believe they can. So I wanted to do that. And then kind of a theoretical, what would their valuation be if they had that 20% margin last year? So if we look at an EV, enterprise value to operating income, so enterprise value divided by operating income, if their margin was 20%, they're trading at 12 times. And remember, ryan mentioned that we should get a nice little boost from that interest uh income as well all right let's keep moving along anecdotal evidence ryan looks like we really just have the venmo here i do want to talk about maybe maybe i'll talk about the international remittance and contractor

payments stuff that's a small part of the business but really we um yeah you go with venmo first oh yeah and so i i guess i'm a regular venmo user i don't see myself stopping at any point However, I contribute no revenue to them since I don't do the instant transfers. The other side of things I want to talk about is I've been increasingly using Apple Pay. And I was kind of one of the slow adopters, at least around my friend cohort, to start using it. The first was for physical merchants. So whenever I was going somewhere, point of sales, I would check if they had Apple Pay because oftentimes I forget my wallet or something like that. so it's easier to just pay with my phone but the more i get used to it the more i use it for online

checkout as well so once i'm kind of acclimated to using apple pay if i start to see that apple pay um logo in a checkout uh process i'll typically opt for it at this point so yeah and it'll be one click it'll be very seamless if it's across your apple devices same exact thing with google um on my end but what's interesting is i think people are going to use apple plan venmo or google pay and venmo because there's not a monopoly on mobile devices right i feel you know what i mean does that make sense yeah but that's that that's a terrible situation for paypal right because venmo like whatever you know i don't think so it's trivial in terms of peer-to-peer revenue it doesn't really drive that much for the business but if you're using apple pay and

or google pay and you're getting more and more acclimated to it and you start to use it across mobile checkout, boom, that's a huge, you know, the PayPal button is the main driver of gross profit for them. Right. When you're not going mobile. Yeah, that's true. That's true. I guess that is a concern. All right. Yeah. Look, I did mention too here on my anecdotal that the Venmo is impressive because they're still surviving and growing. I'll try to put down their payment volumes within the newsletter while Apple and Google as the operating systems are trying to crush them. So that's, that's impressive on that end. I want to talk about the kind of business payment stuff, um, specifically with something like PayPal kind of business transfers or bank

transfers, or I don't really know how to describe this as a smaller part of the business, but it relates to the zoom one. And we'll talk about it later, how they should probably, you know, get rid of it. Um, when we try to use PayPal, the fees are too high to transfer money to say an advertiser payment or to accept money from someone else and we've increasingly gone to wise we use wise for business and the we aren't the ones that do the money here but brady the producer who brady hello if you're listening right now um they are he likes to use that wise for business way more he just finds it much better fees are lower it's much easier to use and he just likes it a lot more so i don't just say there it's not going to be a big part of the paypal business but

it kind of shows that that zoom acquisition was pretty poor yeah they i mean also their fees are just kind of ridiculous on some of that stuff yeah it's another all right future growth opportunities ryan looks like we got the two big ones which are venmo and braintree so why don't should go first yeah so i mean venmo i guess my i'm a regular venmo user i think i use it probably once or twice a week i don't know if they've really ever gotten revenue from me and so i guess that's the you know and people have been saying this for a while which is like okay there's a huge moat here if they start to roll out some new products start to cross sell the kind of the the cash app has a cash app crushes them in monetization yeah it would uh it would be huge

for them and there's actually this quote from brad freeman stock market nerd um in his write-up which was from the i think the head of consumer or something like that one of the executives at paypal he says we've been very cautious to ensure that when we add venmo monetization features we're doing so in a way that resonates the last thing we want to see is users start leaving the platform and we're just not seeing that there's so much value to unlock and we are in early innings i think there are maybe two cautious here because to the plate guys let's do it how many times i think once apps start to really push the envelope in terms of adding new features revamping the product there's always the initial pushback think about snapchat think

about spotify think about i don't know if it happened as much but any of them There's always that initial pushback, and then users continue to trickle upwards. The products get adopted more and more. And importantly, the moat widens. People evolve. They adapt to whatever the new product is. So yeah, and the moat widens. I think Venmo can really start to do that.

They've been doing it a little bit with the Venmo credit card. I know a couple of friends that use the Venmo credit card, potentially sort of a high-yield savings account. I don't know if they do offer some of this stuff already. Shame on me. but it's been poorly communicated to the users i i i use the venmo app all the time like i said and it feels very similar to the same venmo app from three years ago yeah it's also clunky um i will say i don't like it it's pretty unintuitive especially compared to the cash app i will say i

stop using the cash app um but yeah all right mine is going to be brain tree which i wrap things up here as ryan talked about in the opening section brain tree just for another you know refer uh reference is a merchant acquirer that competes with the likes of Stripe and AdGan. Apologies that merchant acquirer isn't the proper term, but again, just think of it as that payment processor managing all the backend for these large enterprises. And actually they are going to try to target small businesses as well with another kind of the brain treat tech, but maybe it's under a different brand, but big time TBD on that. So the customers include all big enterprises. They use Microsoft as an example here. And in the annual report, they explicitly

said and here's a quote we are doubling down on brain tree i just say the reference here they love talking in analogies and stuff and they go to so many investor conferences and just say that they're blocking and tackling or we're reducing friction or we're gonna really just double down and it's kind of annoying but i would say that they are focusing on brain tree they have seen some success here you know we don't get we do not get segment numbers every quarter we don't get profitability numbers really at all, if I'm being honest. But we do get anecdotes and it's pretty much, they say that brain tree is going very quickly. I think it is generally a fantastic counter position for PayPal as it gets increasing threats from quote unquote, the button, shop pay,

Google pay, Apple pay, Amazon buy with prime is that kind of, they'll maybe over the next few years. Plus, I think something investors underestimate is that when PayPal updates online checkout with Braintree as the backend, or what they might describe as unbranded PayPal checkout, they can make sure they get distribution for their customer-focused services, PayPal and Venmo, which according to management, after someone updates to this new unbranded checkout service. They see material uplift for consumers using PayPal or Venmo at checkout. I think this is an advantage they can use to counter position versus Apple, Google, or Amazon, who don't have any of that backend payment processing. Thoughts on that, Ryan? Do you think Braintree is the key

here? I kind of think that they should sell off everything except Braintree, Venmo, and the core business what do you think yeah uh i think that's probably get it cleaner just the rational thing to do it seems like it feels like they do have i don't know just they're they're too thin and you know even when we're doing this show it's going long because this is such a hodgepodge of random assets that if you just, for one, it would reduce bloat at the company, reduce operating expenses, yada, yada, yada. But it would also, if you're able to sell those assets, it could probably increase focus on the things that matter. And you have some really, really good businesses in here. I do think that Braintree for them, not only is it potentially

the big growth avenue here, but it's also their margin of safety in a way in case transactions start to go off of PayPal, the button. But let's talk highlights and lowlights. I know this has gone long, so I'm just going to rip through, I guess, my highlights. So activist investor involvement. I like it because it seems like it's helping management rationalize expenses, is rationalize costs across the board, maybe not waste money on big acquisitions. The other thing here is nothing helps a management team rein in their focus like a decrease in stock price. And we've really seen that, I think. The other one is the power users. There are still a lot of PayPal users that account for the majority of transactions. So here's a quote

from Mostly Borrowed Ideas. He says, what insulates PayPal further from experiencing declining revenue. A declining revenue scenario is the core business. In the core business, 30% of active accounts generate 80% of transactions. So it's a lot harder, I think, to convert those users away. I bet Apple Pay, Google Pay, they've kind of gotten probably the low hanging fruit, but PayPal still has a really solid core base of users. Anything to add? Yeah. I wanted to touch on monthly active users. They don't say this metric every time and they don't write it down in their earnings releases, but in some of the earnings transcripts that they have on their website, they talked about how MAUs are growing and that they can contribute

20 times the transactions to a non-MAU, someone that just does one or two a year. So I think that is important. I wish they would do that every quarter and they would kind of show like, hey, look, we might be sacrificing some poor active accounts that don't really make much money for us, but our core ones that are monthly active users are actually growing. Yeah. And then the rest of my highlights, they can earn interest on that flow. It's a higher rate environment. That's going to be hopefully meaningful at some point, and the higher the rates go, potentially the more meaningful. The repurchase program. Last year, they spent 4.2 billion on buybacks out of 5 billion in free cash flow. I think they could probably

spend more than they generate in free cash flow right now on buybacks, given their net cash position. They said they'll do at least 4 billion this year. I think assuming the price stays where it's at, there is a realistic path to reducing share count by 6% to 7% a year. And the last thing is they're growing. It feels with all the commentary around this business and all, even the negative sentiment we've probably had throughout the show, the business is still growing. The core PayPal button is still growing, especially in constant currency, even though they're maybe not taking share. Digital payments globally are still growing, which means so too is PayPal. Lowlights, however, I think the Apple Pay risk is real and the Google Pay risk also is

real. More and more payments are moving towards mobile, I assume. I guess I don't really have any data to support that, but I would assume. And Apple Pay and Google Pay really have a foothold there and it's just extremely convenient and go ahead because they're anti-competitive and don't give paypal access to that chip or whatever that allows them to pay a point of sales it's a big advantage they gotta yeah or maybe they hope for regulation but they gotta step up their game at venmo i know they're at a disadvantage but they really gotta execute there the other thing um mostly borrowed ideas kind of brought this up. And I cannot remember the specific figure, but they had, management had just really easy one foot hurdles to kind of meet a couple of years

back. They had these one foot hurdles to get bonuses. Basically it was like, I forget like 6% revenue growth or something like that. And that was like the pace that the business was growing without any tweaks to it. But then they gave out completely different guidance for investors. So there was a clearly a mismatch between what they were required to get to, to get paid versus what investors were expecting. So I don't know that, that kind of, I guess, upsets me. I guess just in general, they have a lot of the corporate red flags that bother me. Yeah. And maybe just a culture that I don't find particularly exciting. Yeah. For shareholders, I kind of agree with that. All right. My highlights,

Like you mentioned, good industry, the growth and durability are fantastic. Digital payments continue to grow, and the digital payments industry is not going to go away. Also, a highlight, they are going to apparently sell Zoom again, which is X-O-O-M. According to the information, they're looking to sell it. I think that's good. I mentioned the buyback as well, but Ryan already talked about that. Lowlights, though. On the flip side, the downside of this industry is that it is very tough from a competitive standpoint. You have Stripe and Adyen, you have ShopPay, Amazon Buy with Prime, Apple Pay, Google Pay with that core checkout stuff, and then the Cash App plus many others competing with Venmo. There are, when I say others, I mean, internationally, really, because some of those core ones are consumer apps kind of tend to stick with their own geographies, which I think is interesting.

Someone should write a book called The Button Wars. that would be good yeah that would be uh maybe a better name but something a lot hey remember who wrote the space wars or whatever you know i'm talking the war over the button the war over the trillion dollar button the trillion dollar button i got that's the name that's the name right there all right okay all these companies that i mentioned are large they have great track records of execution um right i think the big question is can paypal defend its position they've done okay but it's not about what they did the last five years it's about what they can do for the next five uh and then my other low light i will say if you follow what

management has done with capital allocation kept up with their earnings releases which i'd say we do fairly lightly we would kind of give them a glance kind of check out some of their ir pages and you know you kind of keep up with how they quote unquote invested in the business since the pandemic i think it has a lot of waste remember the super app that they were apparently doing that's all basically zero. It's just money burned. They also have KPIs that are irrelevant, or they do have KPIs that are irrelevant, like total active accounts. Growing active accounts could actually be hurtful for you if the acquisition cost is high and they don't spend much, which again is why I care about that MAU number much, much more. However, they do seem to

be fixing some of this right now, given their commentary, which I think is something every investors should watch, especially once we get this new executive team in place and possibly some activist investors on the board. So I think it's really important because it all connects together. The right incentives, the new management team, and the activist investors, those are all interrelated. Wouldn't you agree? Yes, 100%. All right, let's close things out. Bull case, bear case, Ryan. I think the bull case is pretty simple, honestly. So let's say the PayPal button, the branded checkout continues to grow, albeit at a slow pace, maybe call it 2%, 3% in reported currency, so not constant currency. And everything

else grows a little faster and begins to contribute to profitability, which I imagine if they sell off some of the, pardon my French, shitty assets, they can probably do that. So if those two things happened, I would assume that PayPal would grow its free cashflow, nominal free cashflow in the ballpark of 5% to 10% a year. If you assume that they spend 90% of their free cashflow over the next five years on buybacks, SBC stays flat. And based on today's current price, I kind of just ran the numbers. That would be free cashflow per share growth of 16% annually. My assumptions were 5% free cashflow growth this year, and then 10% the four years after. So probably somewhere in the blend of like eight or 9%. That's really good given that it's at 14 times free cashflow or

something like that. And they could spend more than their free cashflow on buybacks. They have $15 billion in cash, just took on what 1% interest denominated in the yen. So I don't know. I think they could really choose to buy back here. You can get debt at 1% in Japan, and then you can buy back your stock yielding almost close to a 10% free cash flow yield. Let's go, boys. Let's do it. All right. My bull case is going to be similar. PayPal is trading at 12 times operating income if you assume they hit a steady state margin of 20%. So all you really need to assume here is modest growth, consistent buybacks, and really not terrible capital allocation in order for this to work can they do it i think it's possible uh but i think they really just need to focus on three

things paypal button brain tree then no all right bear case ryan you seem to be on this apple pay kick google pay i see yeah i guess you can kind of just combine them together i feel like it's one of those situations where it could be where the opportunity lies where you kind of flip it and say they're growing in spite of this stuff i don't want to compare everything to dropbox that competes with big tech, but I see it almost as a similar situation. They're not nearly executing as much as say a Spotify is, but what do you think? Is your bear case like, how big can Apple pay get? I think it can eat away a lot of the mobile payments on the iOS ecosystem. I mean, there's no question that Apple is stealing share, but because of the sheer growth of online payments

generally, PayPal is still growing. And so maybe that's one where the risk is certainly overstated. Plus, desktop payments, I expect that to continue to grow. And I don't see why Apple Pay would eat into that. So maybe the risk is overstated there, but I do think it potentially leads to a ceiling on growth for the PayPal button. The other one would just be poor capital allocation. That's the big risk there. But really, I think as long as that cash flow that they currently have is sustainable,

if not more. I don't see how it's a bad investment if they just buy back their own shares. Yeah. That was my bear case as well. I had those two. All right. More or less interested, Ryan, final thoughts. Okay. I think I saw someone say the meta comparison was bad, but it feels a little bit like that in that the investing community seems to have soured on them the same way that people did on Meta. But a lot of that was because maybe management's capital allocation choices. And if you look at the core businesses, the button, Braintree, compare that to maybe like Instagram and Facebook, I think it feels kind of similar where those are durable assets that people are just writing off, PayPal is still growing.

I think that's important. The business is actually still growing and it feels like everyone's calling this... I see it all the time. Where's this going to be in 10 years? I don't know. Probably in a similar place. That's fine for investors from here. I like that the sentiment is so low on them. I'm definitely more interested. Don't love their competitive positioning, but that doesn't mean returns can't be good from here. Yeah, I'm on the fence here. On the one hand, growth prospects look solid. The price you're paying here is not crazy.

On the other hand, I think payments is really tough. You've got tons of competitive threats that make me queasy. Plus, we really don't know anything about new management. So that could be awful. If I was confident in the competitive advantages here, which I am not, but could easily be wrong, i think this would be an easy buy and i want to discuss here our philosophy of how this is kind of a perfect encapsulation which i think a lot of maybe growth investors should look at as

well is when we're looking at a maybe a compound or a growth stock whatever for example we looked at adyen adyen passed kind of our test that we think it's good business we like the management team just because that passes the test doesn't mean we buy the stock and we put it on the watch list, we basically said, well, if Addy never falls 50, 60% from here, it's kind of flat and it gets to a reasonable multiple, we'll buy. And I think this is a perfect example of if you looked at the PayPal stock in late 2020 through basically the midpoint of 2022 and probably even the late point, you could have said, look, I like this business. Maybe you really like it, but the earnings multiple is expensive. And you kind of get antsy and you go, hey, man, it's never going

to get cheap, but that can happen. And I feel like having a stock on your watch list and then waiting for, like I said, if I believed in the competitive advantages or I really did believe in them, like I do with Adyen or someone like Airbnb, then I would be all over this. I feel like it'd be just a fantastic buying opportunity. What do you think, Brian? This fits that category for sure. It's one of those where if you would have told me at the height of 2021 bubble, like, what would you pay for PayPal? I probably would have said, you know what, if this declines 60, 70%, maybe I'd buy it. And I kept saying, and people probably would have said, oh, it's never going to decline that much. And I think it's down 80%.

Stocks don't fall down 80% just because Mr. Market had a bad day. There's fundamental reasons why that happens. You just have to parse through whether those reasons actually affect the long-term cashflow of the business and what it's going to return to shareholders. I would say in this case, the huge drop in price has reigned in focus, reigned in costs, and helped management find religion around, let's generate cash for shareholders. I think it helped in this scenario. I don't think the business quality is that much worse than it was a year and a half ago. Yeah. Maybe they might lose some share on mobile payments, but I think if you're asking what it looks like in five years, I think the PayPal button online is probably still relevant.

Yeah. And like I said, in those situations, when it falls 80%, you got to be confident going in about the competitive advantage. And for me, I'm kind of on the fence of it, but the opportunity is there. And I really think it feels like you should be able to make money here, but again, always do your own research. We don't know it right now. We may in the future,

but again, always do your own research, even if we sound bullish here. Okay, let's wrap things up. Next week, we're going to be doing shift four payments, something that we've not covered at all, but I think will be exciting because I kind of see a lot of coverage on it. If you are a regular listener to the Not So Deep Dive episodes, subscribe to our free newsletter

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