Did I Sell Too Soon?
Summary
Parkev analyzes PayPal's latest financial performance, noting a 5% revenue increase to $8.7 billion but a concerning 5% decrease in operating income. Parkev highlights that while branded checkout has stabilized, the company is facing margin pressure, requiring more effort to generate growth. Parkev emphasizes PayPal's massive scale with over 400 million active users and robust cash flow generation, with $2 billion in operating cash flow this quarter representing a 25% margin.
Parkev explains that management is utilizing this cash for aggressive stock buybacks, totaling $6 billion over the last twelve months, due to limited internal reinvestment opportunities and a cheap valuation. Parkev identifies a forward P/E ratio of 10 as being significantly below historical averages. Additionally, Parkev discusses a recent buyout offer from Stripe and Advent, which management reportedly views as too low, suggesting Parkev believes PayPal is open to a deal at a higher price point.
Mentioned Stocks
Reasoning: Parkev notes that while revenue grew 5% to $8.7 billion, operating income fell 5%, indicating margin pressure. Parkev highlights the company's strong cash flow of $2 billion and aggressive share buybacks of $6 billion over the past year. Parkev calculates a fair value of $73 using a discounted cash flow model, which provides significant upside from the current $58 price, especially with a potential buyout offer providing momentum. Parkev explicitly mentions having sold personal shares last week following the buyout offer announcement but still maintains a buy rating for other investors.