2017 buy pitch for a school club stock competition

1. Investment Pitch PayPal (NASDAQ: PYPL)Investment Pitch PayPal (NASDAQ: PYPL)
Mike Liu
September 31st, 2017

2. Company Overview Key Financials
• One of the largest operators of worldwide digital payment
systems.
• Services as a payment processor for online vendors,
auction sites, and other non-commercial users.
• A subsidiary of eBay from 2002 to 2014, in Q4 2014
PayPal had an IPO that allowed it to advance
independently.
Ticker PYPL
Share Price $64.03
52 Week Low - High $38.06 - $65.24
Enterprise Value $74,994 M
Market Cap $76,990 M
LTM EV/EBITDA 29.7x
LTM EBITDA Margin 19x
Investment Overview

3. Business Model
Summary of Operations
• PayPal is one of the leading firms of digital and mobile payment systems
• Through a two sided platform they connect buyers and sellers and facilitate the processing of transactions
• Charges sellers 2.9%+$0.30 for each transaction
Mobile Revenue Online Revenue
Revenue Segment

4. • 17 million merchants on platform, alliances with major companies. More streamlined process
payment system, PayPal is added to credit and debit cards in PoS systems, allowing further
penetration of usage basing off existing infrastructure.
Strong Moat
• The US digital payment market has been hampered a bit by the existence of legacy tech like credit
cards, so in recent years has been much slower than emerging markets. But by 2020, they will have
aligned much closer to the emerging markets.
Growing Market
• Extremely valuable services provided within PayPal ecosystem. Subsidiaries are growing rapidly,
adding more users to peripheral services that enhances the core platform.
Valuable
Subsidiaries
Investment Thesis Overview
Investment Thesis

5. • Broad public shift towards using mobile payment.
• 39% of US made a mobile payment in 2015 to 70% in 2017
• Total value of transactions by tapping phone in Point-of-Sale
machines will increase from 11.5% in 2015 to 45% in 2019
• Mobile commerce accounted for 11.6% of e-commerce in US in
2015, will account for 45% by 2019
• Digital payment industry grew 19% in 2016, expected to grow
15% annually from 2017 – 2021
Leader in Growing Mobile Payments Market
0%
10%
20%
30%
40%
50%
2015 2019
% of Mobile commerce in E-
commerce
Investment Thesis

6. Major Partners Partnership Benefits
• Turned financial institutions and tech giants from competitors to
allies.
• Convenience will increase user engagement leading to more
transactions per active account
• Aggressively securing its place in the world of multiple digital
wallet options and transaction channels, also able to integrate
into the partners’future services and operations
• Further penetration of payment market through infrastructure
these partners have set up
Strong Partnership Moat
Investment Thesis

7. • International remittance, sending money
back home
• 1.3 Million Active Users
• $7 Billion payment in 2015
• Global Market for remittance at $600 Billion
• Targeting emerging markets like India,
China, and worldwide migrant workers
• Contextual Commerce
• Ability to add buy button to any post, page,
picture etc.
• Peer to peer (P2P) fund transfer, similar to Tilt
• 15 consecutive quarters of doubling yoy growth
• 7% of PayPal’s TPV , $8 Billion payments in
Q2 2017
• Estimated 7 Million Active Users
• Social feed allows for promotion opportunities
Subsidiaries Increasing Value Proposition
Investment Thesis

8. • Fragmented market but not a winner takes all situation
• Smartphone penetration at 74% in US
• In-store mobile payment will reach In-store mobile
payments will reach $503 billion by 2020, reflecting a
compound annual growth rate (CAGR) of 80% between
2015 and 2020.
• Mobile point-of-sale revenue in US is expected to reach
almost $118 billion in 2018, (from just $3.5 billion in
2014); one in every three point-of-sale terminals will
accommodate mobile.
US Mobile Payment Market
Industry Overview

9. • Emerging markets are adopting mobile payment systems
much faster than US
• Emerging markets pushing for mobile payment due to a
leapfrog of traditional PoS machines
• Cross border payment inefficiencies translates to partnerships
• PayPal leads the US market with its history and experience
Active Users 600 M 480M
Market share 40% 53%
TPV 1200 Billion
USD
1700 Billion
USD
Value Generation Social
Transaction
Commerce
Transaction
Global Mobile Payment Market
Industry Overview

10. Comparable Companies

11. Discounted Cash Flow
Valuation

12. • PayPal looking to implement subsidiaries into
its own vast network, especially Venmo
• As mobile payment adoption increases
PayPal’s vast network of partnerships and
services will show even more value
• Current partnerships provide better user
experience and engagement rate, leading to
long term organic growth
• Acquisition of TIO Networks show further
advancement in mobile wallet service
• Total Addressable Market is at $100 Trillion
Currently Growing Core Platform
Catalysts

13. • With $9.1 Billion cash on hand and 0 Debt,
can look to domestic and global companies to
acquire
• Can leverage existing strengths and
dominance to form new partnerships with
other local leaders to participate in worldwide
payment processes
Future Acquisition and Partnership Opportunities
Catalysts

14. Risks
1. Startup competitors in this space, Zelle, Square,
Stripe chipping away at PayPal’s market share.
Stripe’s partnership with Alipay and Wechat Pay is
dangerous to PayPal’s inclusion in Chinese market.
2. Venmo isn’t currently monetized. Each transaction
incurs a processing fee that lowers PayPal earnings.
3. Digital payment viewed as less secure and more
susceptible to hacks after recent Equifax events.
1. Stripe is accepted by much fewer merchants than
PayPal. This partnership can be eliminated as PayPal
continues to dominate the market and prove to
Chinese operators that a relationship with PayPal is
more advantageous
2. Monetizing Venmo needs to be a very careful process
to avoid damaging user experience. Venmo can
negotiate with merchants and use their social aspect
to get merchants to pay a larger transaction fee or
simply implement into PayPal’s existing network
3. Blockchain along with newer fingerprint and face
recognition technology will make mobile payments
more secure.
Mitigation
Risks and Mitigations

15. Football Field

16. 1. PayPal is in very good condition to continue its tremendous growth fueled by an amazing management team and
optimistic industry trends
2. International e-commerce advancements will help PayPal break into new markets
3. A well known company with strong fundamentals and underestimated potential
Summary
Investment Summary

17. Investment Pitch PayPal (NASDAQ: PYPL)Investment Pitch PayPal (NASDAQ: PYPL)
Mike Liu
September 31st, 2017