PayPal (PYPL, Financial) was the leading detractor from performance during the quarter. Total payment volume grew +12% (foreign exchange neutral) while revenues grew +10% (FX-neutral) and adjusted operating earnings grew +19%. E-commerce industry sales trends have normalized back to their pre-pandemic trend of growth, with high-margin branded payments keeping track with the industry. Despite this, investors were concerned PayPal's fast growing, private label payments solutions will dilute Company returns. However, payments are a very scalable business, and we expect the Company will be able to manage both private label and branded to achieve attractive returns and double-digit growth. Although multiples in the payment industry have compressed, especially after the multi-year process of being added to the financial sector, PayPal's businesses are substantially different enough from traditional spread-based businesses, in addition to having much more compelling growth drivers, that PayPal's well-below market multiple should revert to its higher, historical average.
From David Rolfe (Trades, Portfolio)'s Wedgewood Partners second-quarter 2023 letter.
