To The Moon

$PayPal(PYPL)$

In the world of stock picking, there are only a handful of reliable paths to compounding wealth. Most people overcomplicate the process with hundreds of indicators, macro predictions, and market timing attempts. But if we strip everything down to first principles, there are really just two core ways to make money in individual stocks.

Strategy #1: Buy a Wonderful Business at a Fair Price

This is the method made famous by Warren Buffett and Charlie Munger. The idea is simple: find a high-quality business with a durable moat, consistent profitability, and healthy returns on capital—and buy it at a reasonable valuation. Not necessarily cheap, but fair.

If you manage to do this, your long-term return will likely approximate the growth in earnings per share of the business. Why? Because over time, the stock price and the intrinsic value of the business tend to converge. If a business is compounding its EPS at 10% annually, your investment should compound somewhere around the same rate, especially if valuations remain steady.

This strategy is slow, steady, and effective. But the upside is somewhat capped. You’re not likely to earn 25–30% per year unless the business experiences both EPS growth and valuation expansion—which is rare for companies already priced fairly.

Strategy #2: Buy a “Dying” Business That Isn’t Actually Dying

This approach is less intuitive and less popular, but in the right circumstances, it can lead to spectacular returns. The idea here is to look for companies that the market has given up on—those with deeply negative sentiment, declining stock prices, and a general perception that their best days are behind them.

But here’s the twist: these companies are not actually dying. The core fundamentals are still strong—or at least stabilizing—and the bearish narrative is based more on perception than on financial reality.

If you can spot one of these misjudged companies, the return profile can be unusually attractive:

• You benefit from earnings growth if the business continues performing.

• You also benefit from multiple expansion as sentiment shifts and the market reevaluates the company.

• Combined, this creates a compounding engine with dual tailwinds.

This is where PayPal (NASDAQ: PYPL) enters the picture.

PayPal: A Case Study in Market Misjudgment

Let’s begin with the obvious: PayPal’s stock is down 55% over the past five years. A massive drawdown for a business that was once considered one of the digital economy’s crown jewels. The narrative has shifted dramatically. Many retail investors—and even some institutions—now view PayPal as a legacy brand in decline.

The sentiment checklist:

• “No one uses PayPal anymore.”

• “Cash App, Apple Pay, and Zelle are eating their lunch.”

• “Crypto makes them obsolete.”

• “They’re barely growing revenue.”

• “User growth has stalled.”

Some of these concerns aren’t completely unfounded. But the market has arguably overreacted. And as always, when the market gets emotional, opportunity emerges for those who are grounded in the data.

The Fundamentals Tell a Different Story

1. Active Accounts Are Growing, Not Shrinking

Let’s dispel one myth immediately: PayPal’s user base is not collapsing. In fact, the company has grown its active accounts every single quarter.

• Q1 2023: 426 million

• Q2 2023: 427 million

• Q3 2023: 429 million

• Q4 2023: 432 million

• Q1 2024: 434 million

• Most recent: 436 million

This is a company adding 1–2 million users every quarter. That’s not what you see in a dying business. These are real customers with verified payment methods, many of whom use PayPal or Venmo as part of their daily or weekly transactions.

2. Payment Volume Keeps Rising

Another key metric for digital wallets and payment networks is total payment volume (TPV). This is a proxy for how much money flows through the platform, which in turn affects take rates, margins, and growth potential.

Despite the gloom, TPV has grown at a 16% compound annual rate, reaching nearly $1.7 trillion. That’s trillion—with a “T.” It’s not just user growth that’s intact—it’s engagement and volume.

3. Venmo: The Quiet Growth Engine

Venmo is PayPal’s best-kept secret. While PayPal.com may have slowed in growth, Venmo remains a relevant, trusted, and sticky app, especially among Gen Z and younger Millennials.

Venmo now represents 18% of PayPal’s revenue and is still growing double digits year-over-year. As peer-to-peer payments expand, Venmo is well positioned to become an even larger revenue contributor. And as PayPal adds merchant monetization, instant transfers, and card-linked features, Venmo could become a profit center rather than a breakeven side project.

Financial Strength: The Hidden Power of Cannibals

Let’s now turn to PayPal’s financials. Here’s where things get interesting.

• Non-GAAP EPS: Up 23% YoY

• Free Cash Flow Guidance (2024): $6 to $7 billion

• Stock-Based Compensation: Roughly $1 billion annually

• Net Adjusted FCF: ~$6 billion

With a market cap of ~$63 billion, PayPal trades at a 9.6% free cash flow yield. That’s extremely attractive for a large-cap tech company.

And rather than paying dividends or acquiring bloated startups, PayPal is using almost all of that FCF to buy back shares.

This is where the “cannibal” strategy comes in.

AutoZone and NVR: Two Compounding Machines Built on Buybacks

Let’s pause and examine two of the best-performing stocks of all time: AutoZone (AZO) and NVR (NVR).

• AutoZone: 53,000% return since inception

• NVR: ~4,000% return over the past few decades

What do they have in common?

• Modest revenue growth (often under 5% annually)

• High free cash flow conversion

• Relentless share repurchases, even using some leverage

• Stable or cyclical businesses—not tech, not flashy

These companies didn’t need explosive revenue growth. They simply compounded free cash flow per share by reducing share count year after year.

PayPal has the same potential:

• Stable, cash-rich business

• No dividend

• Aggressive buybacks funded entirely by internal cash flows

• Still growing revenue at 5–7% annually

If PayPal compounds FCF/share by 10–15% annually for the next five years, and the market re-rates the stock closer to historical multiples, you could double your money without any blue-sky assumptions.

Valuation: The Market’s Punishment May Be the Investor’s Gift

Historically, PayPal traded at:

• ~30x earnings during its peak

• ~5% free cash flow yield on average

Today?

• 12–13x earnings

• ~9.6% FCF yield

That’s a massive disconnect.

If sentiment improves and PayPal re-rates even to a 7% FCF yield, that implies ~40% upside from multiple expansion alone. Add in 5–7% revenue growth and 9–10% share count reduction, and you’ve got a setup for 15–18% annual returns—possibly more if the market overcorrects on the way back up.

Risks: What Could Go Wrong?

No investment is without risk. Here’s what to watch:

1. Payment volume stagnates – If TPV flatlines or declines across multiple quarters, that would be a red flag.

2. Regulatory or compliance issues – Payments companies face growing scrutiny.

3. Increased competition – Apple, Block, Stripe, and fintech upstarts are all hungry.

4. Execution risk on buybacks – If management overpays or misallocates capital, returns may suffer.

However, none of these risks appear imminent. Volume is growing. User count is up. And buybacks have been well-timed so far.

Conclusion: This Isn’t a Bet on a Turnaround—It’s a Bet on Misjudgment

PayPal isn’t a turnaround story. It’s not losing money. It’s not facing existential threats. It’s not being disrupted into oblivion. What it is facing is an emotional overreaction from the market—a mood swing.

These setups are rare. They require patience, a willingness to look wrong for a while, and a focus on fundamentals over narrative.

But when you find them—and you hold through the noise—the payoff can be asymmetric.

PayPal is quietly becoming a Moat?

The only question now is whether the market will realize it before or after the compounding becomes obvious.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub