paypal holdings inc. march 5 , 2020 scott elliott & noah cha · 2020-07-09 · merchant and...

PayPal Holdings Inc.NDIC – March 5th, 2020Scott Elliott & Noah Cha

Recommendation: BUY

Investment Thesis

Recommendation: PayPal (NASDAQ: PYPL) may represent significant upside due to its potential for growth within the expanding electronic payments space and likely improvement in the monetization of its developing companies

PYPL has a massive TAM and likely will continue to gain share in the fastest growing area of payments

• Potential for new marketplaces following expiration of eBay operating agreement

• Strategic partnerships and international expansion that drive volume growth

• Infrastructure and partners to reduce friction through the development of electronic B2B payment systems

High potential for the improved monetization of Venmo

Braintree is an underappreciated asset and has extensive potential for growth

2

1

2

3

Price Target: $135.4Implied Upside: 20.85%

Electronic Payment: the Players

3

The Merchant The Technology The Customers

Works with merchant acquirer, which sets up the merchant with a payment processor

A payment gateway connects the merchant’s website to a payment processor, which moves the transaction from point A to point B

The transactions behind electronic payment processing are all behind the scene from the customers’ points of view –checkout is fast and secure

Electronic Payment: the Payment Process

4

Step 1: Customer Pays

Step 4: Authorization

Step 2: Encryption Step 3: Authentication

Step 5: Settlement Step 6: Merchant is Paid

Customer makes a purchase on merchant’s website using a debit or credit card

Customer’s personal information and payment transaction data is encrypted as it moves through the payment gateway

Payment processor validates that payment data is being sent by its claimed source

Payment processor requests issuing bank to authorize specific amount of funds from the customer’s account

Occurs when the card issuer sends the appropriate funds to the merchant’s acquiring bank, which deposits them into the vendor’s merchant account

Funds are accessible in the vendor’s merchant account

Where does PayPal fit in?

5

Solution Customer Payment

Encryption Authentication Authorization SettlementMerchant Payment

✔ ✔ ✔ ✔

✔ ✔ ✔ ✔

✔

✔

PayPal Overview

▸ Formed in 1998, operating as Confinity ▸ In 2002, first IPO as PayPal and soon acquired by eBay ▸ Became standalone company in 2015 ▸ Global payments platform featuring two-sided networks (PayPal, Venmo, and Xoom), merchant acquiring platform (Braintree), and

merchant and consumer credit offerings through PayPal Credit and offline payments through iZettle

6CapitalIQ, 10-k, Bloomberg

90%

10%

Transaction Revenue

OVAS Revenue

Company Description

• Core business that makes up largest customer transaction revenues

• ~23mm merchant websites and ~300mm+ active customers

• Modern merchant acquirer with emphasis on mobile eCommerce

• Accept and process cards, PayPal, Venmo, Apple Pay, etc. through one integration

• Mobile payment service primarily P2P

• “Pay with Venmo”, Instant Transfer, and Venmo Card

• International P2P money transfers • 56 markets worldwide • Fees can be 50% than traditional

methods

• Merchant and consumer loans • PayPal Business Loan ($5,000 to

$500,000)• PayPal Working Capital ($1,000 to

$125,000)

18%82%

Cross Border TPV

Domestic TPV

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

21.0%

22.0%

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

2015 2016 2017 2018 2019

Total Revenue EBITDA EBITDA Margin %

TAM Assumptions and Rationale

7Statista, Credit Suisse Estimates

Medium-Term Share Drivers

• Potential for new marketplaces following eBay operating agreement

• Global expansion of PayPal’s full capabilities

• Growth into B2B payments market

41%

17%3%

4%1%

20%

1%

2% 11%

TAM 2019 ($b)

eCommerce, ex AMZNCore Markets, BABA & JD

Online Travel

Ride-Sharing Food Delivery

Online Event Ticketing Online Charitable Donations

Streaming Media Subscriptions Video Gaming

Crowdfunding

$3,168,158$3,595,330

$4,137,523

$4,769,370

$5,440,455

$6,094,311

$6,699,201

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

2017A 2018A 2019A 2020E 2021E 2022E 2023E

Digital Commerce Mobile POS Payments

Global eCommerce Transaction Values ($mm)

New Marketplaces

8CapitalIQ, 10-k

eBay Operating Agreement

• Management has stated that there are large marketplaces that PayPal is prohibited from working with due to its operating agreement with eBay

• Operating agreement was created in 2015 to maintain synergies and provide strategic flexibility for the two firms

• The agreement expires in July 2020 and PayPal has no intention to resign

• Under the operating agreement, PayPal was barred from working with fast-growing, next-gen marketplaces, and it is highly probable that both Amazon and Facebook are among these companies

“…And also remember, there are other big marketplaces out there that we'reprohibited from working with because of the operating agreement…but those marketplaces are ready to start partnering with us…”- Dan Schulman, CEO, April 24, 2019, on the Q1 2019 earnings call

Potential New Marketplaces

• High potential for partnership with Amazon in marketplaces where it is not dominant, developing, or does not offer Prime services

• Amazon sources 92% of revenue from US, UK, Germany, and Japan

• The 8% outside of these markets represents a $33b international volume opportunity for PayPal in 2020E

• 2018 acquisition of Hyperwallet strengthens its position with possible marketplace partners

PayPal: Not a Bank Competitor

Pre-2016 Card Network Agreements

▸ PayPal was viewed as a disintermediary threat to card networks and card issuing partners

▸ PayPal encouraged users to fund transactions with their bank accounts (ACH)

– Card networks and banks missed out on interchange income and interest income on credit cards

Post-2016 Card Network Agreements

▸ Approach to payments ecosystem changed under Dan Schulman

▸ PayPal transformed into a top digital distribution channel for banks, which are now a key source for PayPal’s TPV and user growth

Strategic Bank Partnerships Insulate PayPal from NeoBank Competition and Drive Volume for Both Parties

9

PayPal’s Strategic Partnerships

10

2016

2017

2018

U.S.

Asia Pacific/Europe

PayPal’s global partnerships drive volume growth and create a network effect within their payments ecosystem

Global Expansion of PayPal’s Full Suite

Strategic International Investments

▸ Commercial agreement with MercadoLibre expands PayPal’s Latin American presence and Xoom’s reach in Brazil and Mexico

▸ Paypal’s recent acquisition of GoPay made it the first non-Chinese payments company licensed to provide online payment services in China

▸ Paypal’s Chinese payments license enables the company to offer payment solutions to Chinese businesses and consumers through existing relationships with China UnionPay and AliExpress

– 2016 AliExpress partnership: enabled users outside of China to shop on AliExpress; ~50% of AliExpress merchants accept PayPal

Differentiated Value Proposition

▸ Operates on a massive two-sided payment platform: ~300 million consumers and ~23 million merchants globally

▸ Helps small eCommerce merchants compete: industry leading mobile checkout conversion rate (89%); full suite of commerce solutions through a simple integration process

▸ Honey acquisition: will bolster PayPal’s conversion rates and enable merchants to target specific consumer demographics with personalized offers

Untapped Countries

▸ PayPal operates in over 200 countries, but its full suite of capabilities is only available in about 10, presenting significant room for growth

88.7

PayPal Conversion

55.3

Other Digital Wallets

48.7

Overall Conversion

PayPal’s Conversion Rates vs. Others, Per Cent

Business-to-Business (B2B) Opportunity

12

Significant Opportunity • B2B payments volume approximately $120

trillion per year globally and roughly $22 trillion per year domestically

• ~$1tr of U.S. B2B payments done through card • Significant benefits for businesses as provides

significant workflow automation, reduces labor costs and human error, and increases productivity

PayPal Investment • PayPal has signed numerous B2B partnerships over the past

few years (Sage, Reckon, OroCommerce, Xero, etc.)• PayPal Commerce offers B2B payment experiences across

credit cards, PayPal, debit cards, alternative payment methods, PayPal Credit, and Pay with Venmo

• PayPal continues to invest in this developing and open market

Braintree as an Underappreciated Asset

Braintree’s Strategic Advantages

▸ Enables a merchant to accept PayPal (and Venmo), credit cards, debit cards, ACH (online bank transfers), and other forms of payment (Apple Pay, Google Pay, Samsung Pay) through a single contract and integration

▸ Known for ease of use within developer community, resonating with start-ups and smaller merchants

▸ Leverages the scale and reach of PayPal’s resources and partnerships

Significant Runway for PayPal Integration

▸ Only about one-third of Braintree’s largest merchants accept PayPal

– Presents significant opportunity for growth as PayPal’s differentiated value proposition and massive payment network create strong incentives for merchants to accept payment via PayPal

Key Merchants

Braintree Revenue vs. PayPal Total Revenue

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$1.4b $2.6b $3.5b $4.8b $6.2b $7.9b

16%

23%27%

31%34%

37%

13%

20%23%

27%29%

32%

0%

10%

20%

30%

40%

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

2016E 2017E 2018E 2019E 2020E 2021E

Braintree Revenue

% of Total PayPal Revenue

% of Total PayPal Revenue (excluding PayPal Button)

Braintree: Mobile Accessibility

Braintree’s emphasis on mobile eCommerce integration presents another attractive source of additional payment volume growth

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824.3

975.6

1,133.3

1,286.6

1,426.81,550.8

1,657.2

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

1,800.0

2017A 2018A 2019A 2020E 2021E 2022E 2023E

Mobile Point of Sale Users (millions)

824.3

975.6

1,133.3

1,286.6

1,426.8

1,550.81,657.2

5.0%

10.0%

15.0%

20.0%

25.0%

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

1,800.0

2017A 2018A 2019A 2020E 2021E 2022E 2023E

Mobile Commerce Users and Penetration Rate (millions)

Mobile accounts for 40% of PayPal’s current payment volume, and is expected to increase to 50% by the end of 2020

Venmo Monetization

15Pymnts, Capital IQ, 10-k

Venmo Overview • On pace to generate over $100b in payments volume in 2019• Top grossing app in the US today by dollar volume other than Amazon• Currently an unprofitable business…

Why Venmo is Underappreciated • Competitive differentiator for US mobile payments business • 40 mm engaged users • Millennial user base that is significant for retailers and digital economy

companies • Monetization growth will occur due to increasing instant transfer

revenue, strengthening Venmo card, and Pay with Venmo achieving scale • 25 mm of 40mm users have yet to monetize (solely P2P) • By Q3 2019, Venmo at a ~$400mm revenue run rate,

Where Venmo is Going • Strategy to monetize Venmo by C2B • Evidenced by recent products, such as credit card, Honey shopping integration,

and developing Venmo’s newsfeed to create consumer and brand engagement through rewards and stickers

• PWV likely to scale in 2020 due to the Honey acquisition, increased brand engagement, and increasing use of the PWV button

$186 $289 $413 $549$10

0$247

$523

$873$74 $193

$452

$883

$0

$500

$1,000

$1,500

$2,000

$2,500

2019E 2020E 2021E 2022E

Estimated Revenue Mix

Pay with Venmo Venmo Card Instant Transfer

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Valuation Method Weight Implied Price

Discounted Cash Flow – Multiples Method 100% $135.4

Comparable Companies (EV/EBIT) 0% $85.71

Intrinsic Value per Share $135.4

Current Price (as of March 5, 2019) $112.01

Upside/(Downside) to Current 20.9%

PYPL has a massive TAM and likely will continue to gain share in the fastest growing area of payments

High potential for the improved monetization of Venmo

Braintree is an underappreciated asset and has extensive potential for growth

1

2

3

Final Recommendation

Recommendation: Buy

Appendix

Overview of Fees

▸ Interchange Fee: Card issuer gets paid by taking a percentage of each sale

– Depends on industry, sale amount, and type of card used; over 300 different interchange fees

– Ex: 2.0% of volume + $0.10 per transaction

▸ Assessment Fee: Credit card association usually bundles with interchange fee; cover the operating costs of managing the payment network

▸ Markup Fee: Set of fees charged by everyone else who moves the transaction through the network

– Merchant acquirer: sets up the merchant with a payment processor (acts as a payment gateway)

– Payments processor: responsible for moving the transactions from point A to point B, handles the authorization and settlement, and transfers the money from the customer’s bank to a merchant bank

– Ex: .25% of sale + $0.10 per transaction (varies by industry)

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• Core business comprised of the branded “PayPal button”, resides on ~23 million merchant websites and mobile apps

• 300+ million customers on platform

• Serves small businesses in 12 countries including Scandinavian countries, parts of Europe, the UK, Mexico, and Brazil

• Offers card acceptance services, point of sales management and analysis, small business financing, and access to third party applications

• Merchant acquirer and payment gateway

• Accepts and processes cards, PayPal, and wallets such as Venmo, Apple Pay, and Google Pay in a single, modern integration

• An electronic funds transfer and remittance provider that allows consumers to send money, pay bills, and reload mobile phones from the United States and Canada to 131 countries

• Can send up to $10,000 at once

• Account holders can transfer funds to others via a mobile phone app; both sender and receiver have to live in the U.S.

PayPal: Payment Solutions Overview

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PayPal: Fees Overview

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Monthly Sales Volume

Flat fee per transaction

$0 to $3,0002.9% +

$0.30/transaction

$3,000 to $10,0002.5% +

$0.30/transaction

$10,0002.2% +

$0.30/transaction

Gateway Only Full-Stack

$0.10 + $49/month2.9% +

$0.30/transaction

Electronic Withdrawal

(instant)

ATM Withdrawal

(out of network)

Sending Money Using

Credit Card

1% $2.50 3%

Card Payment

fee

Invoice Payments

POS app

1.75%2.5% per

transaction£39/month

Fees Vary Depending on Transfer

Location

Fees Vary Depending on Reload Location

Fees Vary Depending

on Bill Location

Fixed + exchange rate



Valuation

DCF Output – Base

22

FCF Build - Base Case

FYE December 31, FYE December 31,

($ in millions) 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E 2024E

Total Revenue $10,842.0 $13,094.0 $15,451.0 $17,772.0 $19,726.9 $21,699.6 $23,869.6 $26,208.8 $28,751.0 $31,482.4 $34,410.3

Revenue Growth -- 20.8% 18.0% 15.0% 11.0% 10.0% 10.0% 9.8% 9.7% 9.5% 9.3%

Expenses

COGS 5,701.0 6,695.0 8,262.0 9,785.0 10,889.3 11,956.5 13,152.1 14,441.0 15,841.8 17,346.8 18,960.1

Gross Profit $5,141.0 $6,399.0 $7,189.0 $7,987.0 $8,837.7 $9,743.1 $10,717.4 $11,767.7 $12,909.2 $14,135.6 $15,450.2

Gross Margin 47.4% 48.9% 46.5% 44.9% 44.8% 44.9% 44.9% 44.9% 44.9% 44.9% 44.9%

SG&A 1,997.0 2,370.0 2,855.0 3,112.0 3,550.8 3,905.9 4,296.5 4,717.6 5,175.2 5,666.8 6,193.8

R&D 834.0 1,740.0 1,831.0 2,085.0 2,367.2 2,647.4 2,936.0 3,249.9 3,593.9 3,998.3 4,370.1

Operating Expenses 2,837.0 4,110.0 4,686.0 5,197.0 5,918.1 6,553.3 7,232.5 7,967.5 8,769.1 9,665.1 10,563.9

Operating Income (EBIT) $2,304.0 $2,289.0 $2,503.0 $2,790.0 $2,919.6 $3,189.8 $3,485.0 $3,800.3 $4,140.2 $4,470.5 $4,886.3

EBIT Margin 21.3% 17.5% 16.2% 15.7% 14.8% 14.7% 14.6% 14.5% 14.4% 14.2% 14.2%

Income Tax Expense (24%) 230.0 405.0 319.0 539.0 700.7 765.6 836.4 912.1 993.6 1,072.9 1,172.7

EBIAT $2,074.0 $1,884.0 $2,184.0 $2,251.0 $2,218.9 $2,424.3 $2,648.6 $2,888.2 $3,146.5 $3,397.6 $3,713.6

Cash Flow

Plus: D&A 718.0 805.0 776.0 912.0 1,085.0 1,193.5 1,312.8 1,441.5 1,581.3 1,731.5 1,892.6

Discretionary Cash Flow 2,792.0 2,689.0 2,960.0 3,163.0 3,303.9 3,617.8 3,961.4 4,329.7 4,727.8 5,129.1 5,606.1

Less: Increase in NWC 0.0 (39.0) 6,450.0 (2,921.0) 694.2 104.7 179.5 193.5 210.3 225.9 242.2

Less: CapEx (669.0) (667.0) (823.0) (704.0) (1,183.6) (1,345.4) (1,527.7) (1,651.2) (1,811.3) (1,983.4) (2,167.8)

Free Cash Flow $2,123.0 $1,983.0 $8,587.0 ($462.0) $2,814.5 $2,377.1 $2,613.2 $2,872.0 $3,126.8 $3,371.6 $3,680.5

Free Cash Flow Growth -- (6.6%) 333.0% (105.4%) (709.2%) (15.5%) 9.9% 9.9% 8.9% 7.8% 9.2%

Unlevered Free Cash Flow

WACC 10.49%

Discount Period 0.5 1.5 2.5 3.5 4.5 5.5 6.5

Discount Factor 0.95 0.86 0.78 0.71 0.64 0.58 0.52

Present Value of Free Cash Flow $2,677.6 $2,046.8 $2,036.7 $2,025.9 $1,996.3 $1,948.4 $1,925.0

Enterprise Value DCF Sensitivity Analysis

Cumulative Present Value of FCF $14,656.7 WACC

Terminal Value 135.40 8.5% 9.5% 10.5% 11.5% 12.5%

Terminal Year EBITDA $6,778.8 38.0x $144.59 $136.70 $129.32 $122.42 $115.97

Exit Multiple 40.0x 39.0x $147.99 $139.90 $132.34 $125.27 $118.66

Terminal Value $271,152.8 EV/EBITDA 40.0x $151.40 $143.11 $135.37 $128.12 $121.35

Discount Factor 52.30% 41.0x $154.80 $146.32 $138.39 $130.97 $124.03

Present Value of Terminal Value $141,820.1 42.0x $158.20 $149.52 $141.41 $133.82 $126.72

% of Enterprise Value 90.6%

Enterprise Value $156,476.7

DCF Implied Equity Value and Share Price


Less: Total Debt $5,000.0

Plus: Cash & Cash Equivalents $7,349.0

Implied Equity Value $158,825.7

Implied Share Price $135.40

Shares Outstanding 1,173

DCF Output - Bull

23

FCF Build - Upside Case



Total Revenue $10,842.0 $13,094.0 $15,451.0 $17,772.0 $20,260.1 $23,076.2 $26,260.8 $29,858.5 $33,889.4 $38,362.8 $43,349.9

Revenue Growth -- 20.8% 18.0% 15.0% 14.0% 13.9% 13.8% 13.7% 13.5% 13.2% 13.0%

Expenses

COGS 5,701.0 6,695.0 8,262.0 9,785.0 11,143.0 12,691.9 14,443.4 16,422.2 18,639.2 21,099.5 23,842.5

Gross Profit $5,141.0 $6,399.0 $7,189.0 $7,987.0 $9,117.0 $10,384.3 $11,817.3 $13,436.3 $15,250.2 $17,263.2 $19,507.5

Gross Margin 47.4% 48.9% 46.5% 44.9% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0%

SG&A 1,997.0 2,370.0 2,855.0 3,112.0 3,444.2 3,923.0 4,464.3 5,075.9 5,761.2 6,521.7 7,369.5

R&D 834.0 1,740.0 1,831.0 2,085.0 2,228.6 2,538.4 2,888.7 3,284.4 3,727.8 4,219.9 4,768.5



EBIT Margin 21.3% 17.5% 16.2% 15.7% 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% 17.0%

Income Tax Expense (24%) 230.0 405.0 319.0 539.0 723.3 823.8 937.5 1,065.9 1,209.9 1,369.6 1,547.6

EBIAT $2,074.0 $1,884.0 $2,184.0 $2,251.0 $2,720.9 $3,099.1 $3,526.8 $4,010.0 $4,551.3 $5,152.1 $5,821.9

Cash Flow

Plus: D&A 718.0 805.0 776.0 912.0 1,215.6 1,384.6 1,575.6 1,791.5 2,033.4 2,301.8 2,601.0


Less: Increase in NWC 0.0 (39.0) 6,450.0 (2,921.0) (1,322.2) (45.3) (51.3) (57.9) (64.9) (72.0) (80.3)

Less: CapEx (669.0) (667.0) (823.0) (704.0) (1,114.3) (1,269.2) (1,444.3) (1,642.2) (1,863.9) (2,110.0) (2,384.2)

Free Cash Flow $2,123.0 $1,983.0 $8,587.0 ($462.0) $1,500.0 $3,169.2 $3,606.9 $4,101.4 $4,655.9 $5,271.9 $5,958.4

Free Cash Flow Growth -- (6.6%) 333.0% (105.4%) (424.7%) 111.3% 13.8% 13.7% 13.5% 13.2% 13.0%


WACC 10.49%

Discount Period 0.5 1.5 2.5 3.5 4.5 5.5 6.5

Discount Factor 0.95 0.86 0.78 0.71 0.64 0.58 0.52

Present Value of Free Cash Flow $1,427.1 $2,728.9 $2,811.0 $2,893.1 $2,972.6 $3,046.5 $3,116.4



Terminal Value 146.43 8.5% 9.5% 10.5% 11.5% 12.5%


Exit Multiple 28.8x 39.0x $214.56 $202.65 $191.53 $181.12 $171.39






Implied Equity Value and Share Price



Plus: Cash & Cash Equivalents $7,349.0




DCF Output - Bear

24

FCF Build - Downside Case



Total Revenue $10,842.0 $13,094.0 $15,451.0 $17,772.0 $19,371.5 $21,076.2 $22,909.8 $24,880.0 $26,970.0 $29,181.5 $31,516.0

Revenue Growth -- 20.8% 18.0% 15.0% 9.0% 8.8% 8.7% 8.6% 8.4% 8.2% 8.0%

Expenses

COGS 5,701.0 6,695.0 8,262.0 9,785.0 9,685.7 10,538.1 11,454.9 12,440.0 13,485.0 14,590.7 15,758.0

Gross Profit $5,141.0 $6,399.0 $7,189.0 $7,987.0 $9,685.7 $10,538.1 $11,454.9 $12,440.0 $13,485.0 $14,590.7 $15,758.0

Gross Margin 47.4% 48.9% 46.5% 44.9% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%

SG&A 1,997.0 2,370.0 2,855.0 3,112.0 3,293.2 3,582.9 3,894.7 4,229.6 4,584.9 4,960.9 5,357.7

R&D 834.0 1,740.0 1,831.0 2,085.0 2,130.9 2,318.4 2,520.1 2,736.8 2,966.7 3,210.0 3,466.8



EBIT Margin 21.3% 17.5% 16.2% 15.7% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0%

Income Tax Expense (24%) 230.0 405.0 319.0 539.0 1,022.8 1,112.8 1,209.6 1,313.7 1,424.0 1,540.8 1,664.0

EBIAT $2,074.0 $1,884.0 $2,184.0 $2,251.0 $3,238.9 $3,523.9 $3,830.5 $4,159.9 $4,509.4 $4,879.1 $5,269.5

Cash Flow

Plus: D&A 718.0 805.0 776.0 912.0 1,162.3 1,264.6 1,374.6 1,492.8 1,618.2 1,750.9 1,891.0


Less: Increase in NWC 0.0 (39.0) 6,450.0 (2,921.0) (4,056.7) (269.3) (289.7) (311.3) (330.2) (349.4) (368.9)

Less: CapEx (669.0) (667.0) (823.0) (704.0) (774.9) (843.0) (916.4) (995.2) (1,078.8) (1,167.3) (1,260.6)

Free Cash Flow $2,123.0 $1,983.0 $8,587.0 ($462.0) ($430.4) $3,676.1 $3,999.0 $4,346.2 $4,718.6 $5,113.4 $5,530.9

Free Cash Flow Growth -- (6.6%) 333.0% (105.4%) (6.9%) (954.2%) 8.8% 8.7% 8.6% 8.4% 8.2%


WACC 10.49%

Discount Period 0.5 1.5 2.5 3.5 4.5 5.5 6.5

Discount Factor 0.95 0.86 0.78 0.71 0.64 0.58 0.52

Present Value of Free Cash Flow ($409.4) $3,165.4 $3,116.7 $3,065.8 $3,012.6 $2,954.8 $2,892.8



Terminal Value 124.40 8.6% 9.6% 10.6% 11.6% 12.6%


Exit Multiple 28.8x 19.3x $96.69 $91.20 $86.06 $81.25 $76.75






Implied Equity Value and Share Price



Plus: Cash & Cash Equivalents --




Comparables Analysis

25

Valuation StatisticsMarket Enterprise EV / Revenue EV / EBITDA Price / Earnings

Company Ticker Capitalization Value 2019A LTM 2019A LTM 2019A LTM

Mastercard Incorporated MA $303,905 $305,518 18.3x 18.1x 30.3x 30.0x 44.4x 38.1x Visa Inc. V 417,397 421,989 16.9x 17.9x 24.6x 26.3x 35.3x 35.5x Global Payments Inc. GPN 58,104 66,546 8.0x 13.5x 20.3x 34.6x 73.6x 89.8x Fiserv, Inc. FISV 76,181 97,930 8.9x 9.6x 25.6x 27.7x 55.7x 65.6x

PayPal Holdings, Inc. PYPL $135,242 $129,953 6.7x 7.3x 34.9x 38.2x 50.8x 55.7x

Low $58,104 $66,546 8.0x 9.6x 20.3x 26.3x 35.3x 35.5x Mean 213,897 222,996 13.0x 14.8x 25.2x 29.6x 52.3x 57.2x Median 190,043 201,724 12.9x 15.7x 25.1x 28.8x 50.1x 51.8x High 417,397 421,989 18.3x 18.1x 30.3x 34.6x 73.6x 89.8x

Operating StatisticsRevenue Revenue Growth EBITDA EBITDA Margin

Company Ticker 2019A LTM '18-'19A LTM 2019A LTM 2019A LTMMastercard Incorporated MA $16,883 $16,883 19.6% 12.9% $10,189 $10,189 60.4% 60.4% Visa Inc. V $22,977 23,525 21.7% 10.7% 15,737 16,052 68.5% 68.2% Global Payments Inc. GPN $4,912 4,912 5.3% 45.9% 1,925 1,925 39.2% 39.2% Fiserv, Inc. FISV $10,187 10,187 3.5% 74.9% 3,535 3,535 34.7% 34.7%

PayPal Holdings, Inc. PYPL $17,772 $17,772 20.8% 15.0% $3,404 $3,404 19.2% 19.2%

Low $4,912 $4,912 3.5% 10.7% $1,925 $1,925 34.7% 34.7% Mean 13,740 13,877 12.5% 36.1% 7,847 7,925 50.7% 50.6% Median 13,535 13,535 12.4% 29.4% 6,862 6,862 49.8% 49.8% High 22,977 23,525 21.7% 74.9% $15,737 $16,052 68.5% 68.2%

paypal holdings inc. march 5 , 2020 scott elliott & noah cha · 2020-07-09 · merchant and...

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