good day fellow investors. PayPal is always a stock requested in the comments, and I haven't analyzed it properly already for two years. A lot has changed since I told you not to buy at 126, and then we later updated a little bit. Now, over the last 12 months, it is a slightly negative downtrend, but I want to discuss how PayPal seems a little bit desperate to me, and there is the risk of permanent capital loss. Let's start with the discussion. If we look at the numbers, it all looks good. We have total payment volume 14% up, revenue 9% up in the last quarter. That is their transaction margins. Everything looks good, and even earnings are positive. If I look at it from a 12-month perspective, we can have, let's say, with the growth, four plus bucks per share, which is a P/E ratio of 15. That is just a little bit less than half of the S&P 500 P/E ratio for a company that is still growing high single digits. P/E ratio 15. If that continues, that is cheap.

stock. However, active accounts, they are still there year on year growth just 1% down, but all other things are slowly growing. If I look at cash flows, those are extremely strong, 1.7 billion, 1.8 billion in just one quarter, and their plan is to keep working on their cash flows. And you can see here five billion over the last 12 months, which is five billion on the market cap. It's a great, great return, and all will likely be used for share repurchases. And they reduced weighted average shares by 5%. Now, here is a little catch that they don't tell you, 5.47% reduction of shares over the last 12 months. And you can see that they have intensified that share repurchases. But when I do my calculations, 5 billion on the market cap of 61 billion is a little bit more than 5%. Then I go and check the number of shares outstanding, and you can see here that they lowered the number of shares as they said by 5.5%. The problem is that five billion on

the current market cap. And we have seen that the stock price over the last 12 months was here and there, no big volatility, there no big change, but 5 billion on the market cap is 7.8%. That's I have 2.3 percent that has simply vanished. And that Vanishing has happened because the management is receiving a lot, a lot of shares as compensation. If they make 5 billion, that is 7.8%, and they just buy back 5.5% of the shares outstanding, it means that the management is getting 25% of that free cash flow as compensation, if in the form of stocks. Now they have included this shareholder compensation in there, let's say enhancing accountability and transparency, okay, that's good, but it's still happening. And I think this is a big deal because it shifts also the Management's Focus from I'm trying to get as much as I can while I can. If it doesn't work, I'll go work somewhere else. If it works great. And this is the first.

desperation risk where you don't really care much about the shareholders. You are pushing all the cash flows into the BuyBacks, getting shares, selling shares, and who cares. That's one, of course, I might be wrong, but it's the first red flag here after watching PayPal for longer than I have gone into reading the transcript of the last earnings SC and transition year. These are the most dangerous words: turnaround, strategic improvement, innovation into strategy, etc., etc., that you can hear when it comes to businesses' transition. Okay, it might work, it might not work, as Buffett says, never ever invest in a turnaround. And then there are these ideas: fast lane by PayPal. Yes, PayPal has a great legacy position within the world, but I think that over time it will be harder and harder to keep that one. More desperate measures: stable coins, whatever, looking to get more money on Venmo, then this advertising. Now you want to pay with PayPal and then also get an advertisement. So they hire someone from Uber, and that is exactly what I was telling you. If it works, great. If it

doesn't work. I'll go work somewhere else. And isn't that the story with Uber? No, and then P2P okay platform, great customer base. But if you start messing with that, there is so much competition. And maybe they will be able to do it, but maybe not. And here is a great question by Brian King from Deutsche. And I think this is already a few times that I have selected really him from a conference call. And then he asks straight on, what's the key here? What's the elephant in the room? You know, the naysayers on PayPal would say the company is structurally challenged with the rise of payment methods like Apple pay, etc. You have been now the CEO at PayPal over six months. What do you think naysayers are missing on the competitive advantages PayPal still has in the market, in particular to grow branded? And then you can pause a little bit here on the answer, but the answer is inconsistent. Yes, what they are doing, what this, what that, but there is really nothing that would convince me.

that's okay. This is not cheap. This will turn around. It might, it might not. So, my conclusion on PayPal here is that there is competition and doing business will be harder and harder. Buybacks are there to keep the shares higher, to get as much compensation as they can. They are getting 25% of whatever the company makes in a year. It's just going to management, a share-based compensation. Therefore, they have to spend on buybacks to keep the stock price higher. The cash flow yield is not around 8%. It's closer to 5% because of this stock compensation. And even the P/E ratio of 15 or 20, or it will maybe go a little bit lower, it's not enough to justify the risk. Because if they have really structural issues, then there is the risk of permanent capital loss. So, I would maybe there will be a high reward, but there is also significant risk if they just start slowing down next quarters, next year. This stock is 50% down, which is a huge risk. So, anything can happen.

I'm out of PayPal. This is my last video on PayPal because of the structural business risks. No more long term. The mode is eroding, and therefore, also the desperate moves by the management is something that does not inspire me. And spending now on BuyBacks. Of course, the stock is down and cheaper, but that implies shows their confidence that it will work, the turnaround, the transition. But if it doesn't, then it's just money that rewards those who are selling the share. As always, thanks for watching. I'll see you in the next video.

PAYPAL Stock Analysis (PYPL Stock Risk & Reward)

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