Technology stocks and high-growth names were the belle of the ball for a number of years but times have changed and market sentiment has turfed tech in search of value and defensive plays in these turbulent times.
But the smart investor shouldn’t be running for cover but rather seeing the current moment as a buying opportunity. So says portfolio manager Barry Schwartz, who likes PayPal (PayPal Stock Quote, Charts, News, Analysts, Financials NASDAQ:PYPL) for its still-solid growth prospects.
“We’re not traders,” said Schwartz, chief investment officer at Baskin Wealth Management, speaking on BNN Bloomberg on Thursday. “Our thesis in Paypal essentially remains the same. We’re suffering from multiple contraction on a lot of these stocks. That’s what happens when they go down.”
One of the early COVID winners, payment solutions platform PayPal saw its share price take off practically from the moment the market hit bottom in March of 2020. The stock rose from under $100 per share as of April of that year all the way to $300 by July of 2021. But that was it for PYPL, which started backtracking from there and, coupled with some major skids along the way, has now ended up back where it started at around $95.
That’s an incredible round trip for the now $116-billion company. The stock was showing a little life over the last week of January but then came PayPal’s Q4 earnings report, which missed on EPS as well as guidance and resulted in a quick 25 per cent drop in share price.
PayPal reported fourth quarter revenue of $6.92 billion, up 13 per cent compared to a year earlier, and earnings of $1.11 per share, up four per cent from a year earlier. Analysts had on average called for $6.87 billion in revenue and $1.12 per share in earnings.
Those numbers gave PayPal a full 2021 year of $25.4 billion in revenue and $4.60 per share in earnings, representing more-than-respectable growth rates of 17 per cent and 19 per cent, respectively. But it was the look ahead that seemed to cause the greatest distress, where management said it expects revenue to grow by between 15 and 17 per cent in 2022, whereas the Street had a consensus estimate of 17.9 per cent.
“2021 was one of the strongest years in PayPal’s history,” said CEO Dan Schulman in a press release. “We reached $1.25 trillion in Total Payment Volume and launched more products and experiences than ever before. The future is moving in our direction, and we
are investing in our consumer and merchant capabilities to seize the opportunity in front of us.”
The fintech space in general was doing well during 2020 and through half of 2021 but many stocks have since pulled back considerably, with Visa (Visa Stock Quote, Charts, News, Analysts, Financials NYSE:V) down 25 per cent since last July and Square, now Block Inc (Block Stock Quote, Charts, News, Analysts, Financials NASDAQ:SQ), is down by over half over that same time period.
“PayPal had a tremendous 2020 and a tremendous 2021 [but] it’s the guidance,” said Schwartz by way of explanation for the recent drop in share price. “They’ve had so many new accounts and they’re saying some of those accounts are not as legitimate as they thought. So that’s the number one concern.”
“Number two, people are not spending as much online digitally, and a lot of these companies benefited from the US and Canadian stimulus. People got money and they were spending it, and those things are cooling off. And Omicron, of course, hurt a little bit of spending in the last few months of the year in early January,” he said.
Schwartz said PayPal has solid growth prospects and investors needn’t be swayed by the current climate.
“Bottom line, PayPal is still guiding for double-digit revenue growth. I still think it has a path to $50 billion in revenue by 2025, 2026, and a potential to earn maybe $10 a share in four years from now. But the market is just hating on all these companies, and it sells [PayPal] every day, it and Facebook and Netflix,” Schwartz said.
“So, we’re just going to accumulate them. We’re going to continue to buy them and we’re going to look past the negative sentiment,” he said.
PayPal finished 2021 with 48.9 million in Net New Active Accounts (NNAs), giving it 426 million active accounts by the year’s end, and management expects to add between 15 and 20 million NNAs over 2022.
“We are in a much stronger competitive position than we were two years ago and remain focused on innovating at scale and advancing our leadership in digital payments,” said PayPal CFO John Rainey in the fourth quarter press release.