Digital payments processor PayPal Holdings Inc. (NASDAQ: PYPL) reported fiscal fourth-quarter earnings after U.S. markets closed on Wednesday. PayPal stock traded up about 4% in after-hours trading.
After a good night’s sleep, investors pushed PayPal stock up by around 7% in premarket trading Thursday morning.
Third-quarter results
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| Estimate | Actual | Surprise | |
|---|---|---|---|
| Revenue ($B) | 7.39 | 7.40 | 0.1% |
| Adj EPS | 1.23 | 1.30 | 5.7% |
Compared to the third quarter of last year, revenue was up 8.1% and EPS was up 20.4%.
The headline numbers are good, but looking beyond the headlines reveals at least three good reasons to consider adding PayPal stock to a portfolio.
Revenue growth
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Source: VizualStocks.com
PayPal’s revenue growth has kept pace with that of the payment industry’s two giants.
But PayPal’s market cap lags, by a lot:
- PayPal market cap: $56.73 billion (at Wednesday’s closing price)
- Mastercard market cap: $354.31 billion
- Visa market cap: $493.59 billion
Over the past 12 months, PayPal revenue totals $28.56 billion to Mastercard’s $9.4 billion and Visa’s $32.65 billion.
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Free cash flow yield
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- PayPal: 6.4%
- Mastercard: 2.96%
- Visa: 4.1%
Because PayPal does not pay a dividend, the FCF yield depends primarily on share buybacks. When Visa reported quarterly results last week, it announced a new $25 billion buyback program. In fiscal 2022, PayPal repurchased $4.9 billion in stock, Visa repurchased $11.7 billion in stock, and Mastercard bought back $8.75 billion in stock.
Profitability
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Put simply, PayPal gets no investor love.
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