PAYPAL HOLDINGS INC. $41 (Nasdaq symbol PYPL; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $49.2 billion; Price-to-sales ratio: 5.4; No dividends paid; TSINetwork Rating: Above Average; www. paypal.com) processes online transactions, including purchases made through eBay’s auction websites. In the past few years, it has expanded into retail stores and mobile payments.
On July 20, 2015, eBay investors received one Pay- Pal share for each eBay share they held. They only become liable for capital gains taxes when they sell their new shares.
Operating as a separate firm allows PayPal to pursue alliances with more retailers and cut its reliance on eBay. For example, it recently expanded its deal with Chinese online retailer Alibaba to include business-to- business transactions.
At the same time, PayPal continues to invest in its mobile operations, which will help it profit as more people buy goods through smartphones. Transactions made through mobile devices accounted for 28% of the 4.9 billion payments it processed in 2015.
As part of this strategy, the company recently acquired Xoom Corp. for $1.1 billion. This firm’s technology lets users send money, pay bills and reload mobile phones in the U.S. and 37 other countries.
In 2015, PayPal’s revenue rose 15.2%, to $9.2 billion from $8.0 billion in 2014. It added 17 million active users during the year, including 1.6 million Xoom users. It ended the year with 179 million users. In addition, the number of transactions per account jumped 12%.
Earnings soared 193.1%, to $1.2 billion, or $1.00 a share, from $419 million, or $0.34. Without unusual items, PayPal earned $1.29 a share in 2015.
Research costs rose 6.4%, to $947 million (or 10.2% of revenue) in 2015 from $890 million (or 11.1% of revenue) in 2014. These investments will help PayPal complete with larger firms developing their own mobile payment systems— such as Apple and Alphabet/ Google (see page 31).
New buyback plan adds appeal
The company is debt free, and holds cash and investments of $5.8 billion, or $4.71 a share. It recently announced a new $2-billion share buyback plan. There are no time limits to these purchases. For 2016, the company will probably earn $1.49 a share. PayPal’s shares trade at 27.5 times that forecast. That’s high, but it’s still reasonable in light of the company’s strong growth prospects.
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