by Todd Shaver | Mar 31, 2022 | Instant News Flash
The Mood Is Improving
Global payments platform PayPal (PYPL: $118) and its shareholders have endured a rough couple of months. Triggered by poor fourth quarter results in early February and persistent worries about too much competition in Electronic Payments dooming the stock in a rising rate environment, shares fell to a 52-week low a few weeks ago and are now "only" up 27% from that deeply depressed level.
While several analysts have downgraded the stock for nebulous reasons, Goldman Sachs has initiated coverage with a “Buy” rating and a $144 price target, representing an upside of 21% from here. The analyst expects PayPal to return to earnings growth in excess of 20% after 2022, fueled by substantial tailwinds in the form of eCommerce growth, digitalization and more. That's historically all this company has ever needed to keep the stock climbing at a healthy rate, year after year.
PayPal has significantly upped its game when it comes to eCommerce, especially with its acquisition of HappyReturns, a solution that allows merchants who use PayPal Checkout to seamlessly handle returns. The company has further partnered with Ulta Beauty and a number of other firms to expand its return bar locations to over 5,000, offering a critical network for online retailers, especially at a time when average return rates are in excess of 20%.
On a fundamental level, PayPal remains as sturdy as ever. What it went through in recent months is an amalgamation of various factors, mainly the post-COVID overhang, that many of its peers continue to deal with, followed by the loss of eBay payment volumes (anticipated for years) and the lack of any visible growth catalysts in the medium term as the company enters into a “transition year.”
But this is a giant company, at $140 billion of market cap. The all time high is $310 less than a year ago. It WILL get back there – it’s just a matter of time. Last four years of revenues: $15 billion in 2018, followed by $18 billion, $21 billion and then $25 billion last year. Last quarter revenues: $7 billion. And the company is quite profitable too.
The market’s narrow-minded view has resulted in a strong opportunity for value investors to pick up this beaten-down Fintech giant and ride the indomitable growth of digital payments. Trading at just under 6 times sales, the stock is oversold and undervalued. We continue to maintain our Price Target at $305, and reiterate our pledge to never sell this company.
by Todd Shaver | Mar 29, 2022 | Instant News Flash
Fed Dread Evaporates As Management Steps Up
Leading “Buy Now, Pay Later” service provider Affirm (AFRM: $44) has had a rough couple of months, with the stock down over 70% since November. The once piping hot trailblazer has lost over $35 billion in market cap, and now trades below its January 2021 IPO price of $49, despite witnessing a multifold growth in active consumers, GMVs, and revenues during this period.
While most fintech stocks have taken a hit since late 2021, Affirm’s drop is far worse even relative to this broad-based correction. This is all the more perplexing, considering the company’s recent quarterly figures, with a 77% YoY increase in revenues, a 150% increase in active customers, gross merchandise value (GMVs) up by 115%, followed by a mammoth 1,900% YoY jump in active merchants - absolutely crazy strong numbers!
Affirm has remained under pressure since mid-November, when multiple rate hikes seemed increasingly plausible in the face of sky-high inflation. With rising rates, the cost of capital would make BNPL services less profitable on a per unit basis. Management addressed this directly during the recent quarter, with the outlook already reflecting a 180 basis point rate increase.
That's right. An aggressive Fed is built into the business model. And we suspect that's part of the reason Affirm has rebounded a healthy 68% from its recent low now that the Fed has finally started stepping up. There's still ground left to recover but this is a stock that's back on the bull trail.
What else have people found to complain about? The company also faces higher risk premiums with its asset-backed security auctions, with major investors pulling out citing higher market volatility. Finally, the jury is still out when it comes to delinquencies, with data still quite sparse and further clarity only possible as loan books grow bigger and pick up a bigger share of the overall credit market.
While these are all genuine concerns, the stock's recent move to the upside demonstrates the fact behind all the dread, speculation and empty chatter: the risks have been blown out of proportion, and the market response is an overreaction. That's the real important thing anyone looking at Affirm today needs to digest. It was well known that the company would post higher losses as it scales, while collecting valuable data to optimize its offerings. Losses were further enhanced owing to an increase in credit provisioning during the quarter, at $53 million, compared to $13 million a year ago.
Investors also seem to have misconstrued the shift in Affirm’s loan mix in recent months from high-fee instant loans where revenues were paid upfront to longer-term interest-bearing loans with potential to generate higher returns. The second model incurs credit expenses upfront, while generating steady revenues over a period of time, which hasn’t been well received by the markets so far.
Given the large-scale adoption of BNPL among consumers and the substantial benefits it stands to add for merchants, we can safely say that we’ve barely scratched the surface of a potential trillion dollar market. With exclusive partnerships with Amazon and Shopify providing a strong anchor to the company, it has a significant leg-up against competitors.
In hindsight, a $50 billion valuation may have been a little ambitious, but with the stock currently trading at 11 times sales and the business growing at triple digits we believe Affirm to be undervalued. This is a perfect opportunity for investors who missed out on Affirm’s dream run last year to get in on this new, disruptive business. Our Price Target of $200 is currently too high, so we are lowering it to $95, with the Sell Price of $110 lowered to $31.
by Todd Shaver | Oct 8, 2021 | Instant News Flash
Where The Action Is
Square (SQ: $250) continues to expand its foothold in the Financial Services landscape with a formidable ecosystem of apps and solutions, catered towards consumers and business owners, along with bold multi-billion dollar acquisitions in recent months. The company is rightly dubbed "the Google of Fintech."
From a shareholder perspective, the analogy is apt. The stock is a proven performer with shares rallying over 2,100% since 2016. We added it in 2017 at $17 and are up 14X. They have a strong management team that includes the likes of Jack Dorsey and Jim McKelvey, and importantly the company has a track record of successful execution and delivery, constantly outperforming its own projections.
The Price/Sales ratio has been dropping as revenues have skyrocketed of late. The market cap is $115 billion and last 12-months revenues are about $16 billion, giving it a very reasonable P/S of just 7. The stock remains poised for further growth, with Jefferies upgrading the stock to a Buy with a target of $300, representing a 20% upside from present levels. Our own Target is $335, with a Sell Price of $235. But if it goes to $235 or lower we would like it even more. Tough decisions we all have, don’t we!
The analyst cites Square’s 40 million highly-engaged daily active users (DAUs), along with the outperformance of its Cash App, which will drive nearly two-thirds of the company’s gross profits over the next five years. The company is also witnessing significant quarter-on-quarter improvements in unit economics as it reaches widespread adoption among merchants and consumers. Many analysts are predicting 80 million DAUs within two years.
Square’s Cash App also received favorable coverage from a semi-annual research into youth trends titled ‘Taking Stock With Teens’ by Piper Sandler, ranking second among payment apps, gaining steady market share against PayPal’s Venmo, which is currently ranked first.
All good background. But what we really want to emphasize today is the way Square's recent $29 billion announcement of the acquisition of AfterPay (AFTPY) could be a game-changing equation in the Fintech market, especially considering the popularity of Buy Now, Pay Later services among the youth.
Despite remaining flat during the past few quarters, Square has quietly transformed into a Forever Stock, operating in a segment that is still at its nascent stage and ripe for disruption, the company provides services only in a handful of countries, with many more markets opening up for such disruptive technologies.
With $5.6 billion in cash, debt of $6.1 billion, and significant free cash flows, the company has a robust balance sheet, and is rightly termed a ‘Must Own’ by any investor looking for exposure to the Fintech sector. We are BIG believers in this one.
by Todd Shaver | May 27, 2021 | Instant News Flash
PayPal (PYPL: $259; we were here at $31 for a 700%+ return so far)
Global payments facilitator PayPal announced its first quarter earnings results three weeks ago, for the period ending March 31st, reporting revenue of $6.03 billion against Street estimates of $5.90 billion, growth of 31% year-on-year. The company also reported earnings per share of $1.22, beating analyst estimates by $0.20.
Did you spot the 31% per year revenue growth? That's why we're here. PayPal has consistently grown the top line at least 20% a year and the future remains bright. This was the strongest quarter in PayPal’s history, with a total payments value (TPV) of $285 billion and a trailing 12-month TPV reaching $1 trillion for the first time. The company has benefitted from enormous growth in digital spending as a result of the pandemic, with 14.5 million new active accounts and 4.4 billion transactions during the quarter.
With the added momentum of the pandemic and a massive network of 26 million merchants and retailers, PayPal is perfectly positioned to take on the likes of Square and Coinbase with its bold entry into crypto over the past 6 months. According to CEO Dan Schulman, cryptocurrencies will be the key growth engine for the company.
The company is currently working on a "next generation" digital wallet consisting of financial, payments, cryptocurrency and shopping-related services all within one app. With the network and reach of PayPal, it wouldn’t take long for its new services to reach critical mass, and with the right incentives, it is poised to become a dominant crypto and finance player for the digital age.
Unlike other companies that have been beneficiaries of this pandemic-induced growth, PayPal is one of the few that is perfectly positioned to sustain this growth, which reflects well in their full-year revenue and earnings targets, forecasting growth of 20% over the previous year. PayPal had already reached our Target Price of $285, but it has fallen back a bit, giving all of us time to add to our positions.
by Todd Shaver | Sep 11, 2020 | Instant News Flash
We don't have too many, but one of our worst picks ever was Occidental Petroleum. (OXY: $10.05). Occidental is an international oil and gas exploration and production company with operations in the United States, Middle East and Latin America. Headquartered in Houston, Occidental was one of the largest U.S. oil and gas companies, But our timing couldn’t have been worse. After we added it to the Special Opportunities Portfolio in January, the world came apart. With crude in the low 60s everything looked good for the company. With crude in the 30s, not so good. Not good at all. Covid hit and the world started to shut down and certainly didn’t need as much oil and gas for heating and operating automobiles, trucks and office buildings.
The merger with Anadarko looked brilliant at the time. But certainly not for $55 billion. The whole company now is worth less than $10 billion. The company expected to deliver at least $3.5 billion annually in cost and capital spending synergies, but all of these best wishes vanished in the early months of 2020.
Carl Icahn owns 10% of the firm and if anyone can make something happen it is Mr. Icahn. For those of you not quite sure what to do with the stock, at this low level one would think it couldn’t go much lower, and one would think that Icahn would use some of his magic to bring the company out of the doldrums. Holding for another year at this level might see you with a higher price in the future.
We hereby lick out wounds and say goodbye to what could have been a great company in a different time.
by Scott Martin | Jul 22, 2019 | Earnings Preview 6 PM, Instant News Flash
Netflix (NFLX: $362, down 3% earlier this week) disappointed last night and the stock's precipitous overnight decline provides us with a different kind of wake-up call. Whether you're in Netflix or not, you're going to want to read this flash.
On the surface, Netflix delivered a quarter almost entirely in line with what investors told themselves they wanted to see. Revenue of $4.92 billion was only 0.1% below guidance and reflects healthy 26% year-over-year improvement. Even quarter-to-quarter, the company squeezed 9% more cash out of its subscribers than it did three months ago.
Furthermore, despite profit being a lower priority while management invests vast amounts in original content, it was nice to see that Netflix carried $0.60 per share across the bottom line, $0.04 better than we expected.
But the market found fault as Netflix missed its subscriber growth target, losing 126,000 paid U.S. accounts and only adding 2.83 million new viewers overseas. Management told us to expect the audience to grow by an even 5 million accounts, so it's a clear disappointment.
There are some compensating factors like the way revenue hit guidance. Netflix raised prices in many markets and this is apparently where the pain point is. We know that now. Furthermore, management has doubled down on its aggressive growth forecasts and now expects subscriber adds to accelerate again in the current quarter.
We've had it with Netflix. We've warned throughout that it's going to be a volatile ride. The stock is now down 20% since we started covering it this time around, after making 65% back in 2016-17. We're worried about competitors like Disney and Apple starting to crowd into the space. With a negative $3.5 billion of free cash flow this year and next, we'd rather be invested in a company that actually makes money. We hereby remove Netflix from our High Tech portfolio. We added them on July 16th last year. We're gone now on July 18th, 2019.
However, even for a volatile stock, the reaction to so-so numbers was so extreme that we now suspect that the market as a whole is getting overheated. It's not Netflix. It's Wall Street. And an overheated market can lurch lower as fast as it soars. Even counting the stocks that fizzled and left our list under a cloud, the BMR universe is up a dramatic 33% YTD. This is a great time to lock in some of that profit before a moody market can take it away.
Is It Time to Take Some Profits?
Why are we asking this question?We can’t predict the future. You may think we can, but we can’t. And we want YOU to think about where YOU are and where you are going with your investments. We have made some amazing stock picks and we’ve made you a lot of money in many of these. (We’ve had a few losers too.) Roku is now a triple since we added it last year. Shopify is up 350% in two years. Square is another quadruple play. PayPal, Twilio, Paycom, Microsoft, Apple, Visa: all strong performers.
Is it time to take some of that off the table? There are a lot of things to worry about in the world today: Trump, Chinese tariffs, Iran, immigrants, global slowdown, flat earnings for the past quarter and next; negative interest rates in Europe and Japan . . . can they happen here? If so, will the Fed run out of ammunition if short rates go to zero? What about the attacks on Big Tech by Congress and the European Union? Can Facebook, Amazon and Google survive this onslaught? Of course they will, but why sit around with someone hitting you on the head with a hammer. Maybe it’s better to step a little away from the scene.
Lots of questions. No solid answers. Irrational exuberance was proclaimed by Alan Greenspan on December 5, 1996 after an amazing bull run in the preceding few years. But the bull market continued to skyrocket until the Spring of 2000. That’s almost 3½ years after Greenspan’s call. So is it too early to start taking profits now?
Again, we don’t know, but we do know that there are things you can do. You can sell some calls against your stocks. This brings in cash and cushions you on the downside a bit. But if Roku, which was at $32 at the start of the year goes from $110 now to $90 or even lower, it’s not going to cushion you much with $5 of call option income. So perhaps you can take some profits off the table. Maybe you should put some stops in place. Sell some at $104. Sell some shares if it hits $96. Sell some more if it hits $90. Then if it goes to $70, which is a distinct possibility in a nasty bear market, you’ve protected your profits and have cash in the bank.
And don't forget, we’ve got 17 stocks in our High Yield and REIT portfolios that are paying from 3% to 11% dividends. (Be wary of Annaly and New Residential, though.) These stocks are just waiting for you to place some cash in them so that you can sleep better at night.
This content is for our beloved subscribers and anything you see on this page is just an excerpt!
Please note BullMarket.com access is available to paid subscribers only. Our Members Areas include archives of past Newsletters, News Flashes, our eight portfolios including STOCKS FOR SUCCESS, Healthcare, High Yield, High Technology, Aggressive, Real Estate Investment Trusts, Long Term Growth, and Special Opportunities. Also, all of our in-depth research is available, and more.
Already a subscriber?
Login Here
Ready to join?
Subscribe Now!
