PayPal: The Last Dance
PayPal Will Get Sold But at What Price? Dad Says $100. I say $75...
PayPal Holdings Inc:
The Billion Dollar Fintech Garage Sale
PayPal, the company that invented online payments somehow lost all its dominance only decades later. It might actually be the biggest flop in fintech history. Now the vultures are circling its carcass. How did we get here?
It pains me having to come back to this story. Those who’ve followed me know all about the little Alex Chriss betrayal. But the story isn’t over. The war for PayPal has only just begun.
And the final price still remains unsettled.
Restart Mission?
What the HELL happened here?
According to a former PayPal board member, the pandemic unleashed an e-commerce frenzy that sent a demand shock straight to PayPal’s doorstep. Flushed with explosive growth, management overestimated the strength of their product and got complacent.
I think that’s only half the story; the real mistake goes back to the dot-com era.
Elon Musk wanted PayPal to become the world’s first internet bank, but at the time PayPal was struggling against the first wave of online scams. The board concluded Musk’s leadership was too risky and removed him to save it.
Ultimately killing the vision of a global digital bank before it ever had a chance.
Instead, PayPal was acquired by eBay where the two companies scaled together through the early internet boom. When PayPal spun off again in 2015, it still had no ambition to become a bank. And I think that’s exactly why we’re here today.
The Checkout Trap
An asset-light business with fat margins looked far more attractive than dealing with banking regulations and deposit accounts.
Great for profitability. Terrible for actual long-term utility.
So blaming the pandemic is lazy. Because by 2016 the internet had already matured. banks built their own payment rails, and in 2018 Apple Pay and Google Pay were becoming mainstream.
PayPal wasn’t standing still; Venmo and Braintree were excellent acquisitions but the company’s direction became about as exciting as Coca-Cola’s. As long as Branded Checkout kept printing money, nobody cared.
Then Revolut, Klarna, Stripe, Adyen, Affirm, Wise and everyone else arrived. Suddenly PayPal’s biggest advantage was simply... Being everywhere.
And with that global reach, they did almost nothing. Absolute dogwater management.
The Fall of PayPal
Keeping this short, a sliver of hope entered the scene with the former CEO Alex Chriss who stabilized the core when it came to PayPal’s underlying business.
Braintree started expanding and swallowing business left, right and center.
Venmo popularized sending money between friends with a tap.
And the actual PayPal wallet received more attention.
But it was too little too late.
By that time Adyen had already entered back-end supremacy, with Stripe close behind them. Cashapp (Block) adopted the peer-to-peer money sending fairly quickly and banks created their own version Zelle.
As for Branded Checkout? We don’t talk about it.
Klarna, Google Pay, Apple Pay, Shop Pay, Amazon Pay, Affirm, Afterpay, Zip, Revolut Pay, Mastercard/Visa… Give it 5 years? Super Mario Pay.
But that’s also why PayPal is so interesting, despite sucking at everything… It has everything. It could complete any other fintech with its diversified setup.
SOTP Analysis of PayPal
All of the aforementioned fintechs are big fish in their own small respective little ponds.
But if Stripe caught their hands on Braintree? if Klarna/Revolut got Venmo? Or if Google absorbed branded checkout (very unlikely) they would all become the baddest fish in the whole wide ocean.
And when you actually dissect PayPal’s carcass, you just see how criminally mispriced these pieces are on a consolidated basis.
Branded Checkout ($45/share): Valued on a 10.0x FCF multiple.
Braintree ($21.50/share): Valued on a 2.5x EV/Sales multiple (incorporating the massive discount to Adyen’s multiple).
Venmo ($15/share): You apparently value it per active user and when comparing it to Block’s valuation it comes out around $150 per user, 100M+ Venmo users .
The Wildcards ($3.50/share): Bundles PYUSD stablecoin, Xoom international infrastructure, and fraud detection data.
A lot of PayPal’s value resides in the boring stuff: 20 years of data, security & fraud and its futile agentic attempts. So despite Branded Checkout being the money maker, take-rates decrease every year as competition increases.
So it’s not the ultimate asset in my opinion.
But then again… It’s in every country on Earth.
Stripe & Advent’s Lowball Bid
Stripe and Advent’s lowball bid of $60 is downright offensive.
A $60 dollar buyout puts PayPal at a $53B enterprise value. Which Michael Burry rightfully called out as being ‘too cheap’. But it’s basic market psychology:
Always insult them with your first offer.
We didn’t get the exact details of the buy-out, but no one seems to want the entirety of PayPal. Stripe and Advent wanted to keep it ‘intact’ but split it 50/50…
But even then we can assume Stripe wants Braintree to harness more dominance within merchants and some of the $6B in FCF.
I don’t know the story behind Advent, something about wanting PayPal’s revenue for it’s own balancesheet problems.
There’s no telling how this story ends, and I’ve been incredibly wrong before… But this could become a war.
The Auction War
Given the directionless strategy PayPal has endured for half a decade, I can’t see the current management under Enrique Lores holding out for a swift $100 dollar settlement.
It’s not even about him, the entire tight operational defense with buybacks and “trying to buy time” after Chriss’ departure for another restructuring plan? Management won't hold out for the full $86 even.
They will compromise to save face, somewhere around $70-75 I think.
Now as I said, I have been very wrong before. We don’t talk about this, but I thought PayPal’s position was so interesting ahead of the agentic economy that perhaps some AI labs would buy it !😂
Anyway, in the event that it becomes a flea market war or auction where it becomes a complete free-for-all. Then maybe we can see a $100 scenario…
My Move?
My Dad gave me major FOMO and told me he was buying after Burry started talking about an easy 2x.
I’m not my father. But it only felt right to commit after I tortured him with bad PayPal takes for years. And I know for a fact more players than just Stripe, Advent or Block are interested in this anomaly of a company.
It’s just with AI… PayPal isn’t as unique as you think… Many great companies are suffering in the same valuation graveyard as PayPal simply for lacking the AI Adjacent narrative.
Anyway if $70-75 dollars happens I reckon it’s high enough for the board to claim a massive win, while also being low enough that Stripe and Advent can make it work on their end.
I just have to see how this story ends.
Selling ½ my NVO 0.00%↑ to chip back into PYPL 0.00%↑.
Let’s hope Enrique Lores has diamond hands.
FOR ALEX CHRISS!
🛰 Signal LOST: End of transmission — INVADER out… ☠
Disclaimer: This post is for informational and entertainment purposes only. It reflects personal opinions and is not intended as financial advice. Always do your own research before making investment decisions.
Nice post Invader! I agree that the $60 lowball should not be taken seriously...I will be following to see if they hold out for a higher offer or simply ignore it and continue doing what they are doing
❤️