PayPal: Too Many Issues To Reckon With (Archive)

This 5-Minute Pitch was originally published on Seeking Alpha before the launch of the Hunting Alphas website. It is shared here to showcase my previous work and track record. New 5-Minute Pitches published on this site will not be disseminated anywhere else.

Elevator Pitch

• The Seeking Alpha Analyst Community seems to be broadly bullish on PayPal. Wall St is split between Neutral to Bullish. I belong to the Neutral camp.
• PayPal's revenue is showing some signs of a growth rebound. However, I believe the quality of this growth is poor and unsustainable.
• Transaction take rates are falling and the most important growth driver - active accounts - is showing signs of saturation amid signs of user-share loss.
• On the margins side, management's efforts in controlling opex have been undermined by gross margin weakness driven by a dilutive revenue mix shift and hits due to credit losses on merchant loans, which are expected to continue.
• Valuations are undemanding, but I believe that alone is insufficient to make a compelling buy case. I prefer to wait and demand evidence of healthy growth turnaround and gross margin resiliency first.

Read the full article here.