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PayPal Holdings Earnings Power Value (EPV)

: $28.83 (As of Mar22)
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As of Mar22, PayPal Holdings's earnings power value is $28.83. *

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

Margin of Safety is -178.91

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future. Assumption: Current profitability is sustainable.


PayPal Holdings Earnings Power Value (EPV) Historical Data

The historical data trend for PayPal Holdings's Earnings Power Value (EPV) can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

PayPal Holdings Annual Data
Trend Dec12 Dec13 Dec14 Dec15 Dec16 Dec17 Dec18 Dec19 Dec20 Dec21
Earnings Power Value (EPV)
Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only - 19.44 23.64 25.60 29.23

PayPal Holdings Quarterly Data
Jun17 Sep17 Dec17 Mar18 Jun18 Sep18 Dec18 Mar19 Jun19 Sep19 Dec19 Mar20 Jun20 Sep20 Dec20 Mar21 Jun21 Sep21 Dec21 Mar22
Earnings Power Value (EPV) Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 27.40 28.39 30.58 29.23 28.83

Competitive Comparison

For the Credit Services subindustry, PayPal Holdings's Earnings Power Value (EPV), along with its competitors' market caps and Earnings Power Value (EPV) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.

   

PayPal Holdings Earnings Power Value (EPV) Distribution

For the Credit Services industry and Financial Services sector, PayPal Holdings's Earnings Power Value (EPV) distribution charts can be found below:

* The bar in red indicates where PayPal Holdings's Earnings Power Value (EPV) falls into.



PayPal Holdings Earnings Power Value (EPV) Calculation

Earnings Power Value also known as just Earnings Power is a valuation technique popularised by Bruce Greenwald, an authority on value investing at Columbia University. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. This valuation tool excludes the potential growth that a company may have so that needs to be looked at separately. Since future growth is excluded from the analysis, only the maintenance capital expenditures are subtracted from after-tax EBIT (earnings before interest and taxes) and growth capex is ignored.

PayPal Holdings's "Earning Power" Calculation:

Average of Last 20 Quarters Last Quarter
Revenue 19,330
DDA 1,018
Operating Margin % 16.11
SGA * 25% 1,296
Tax Rate % 13.95
Maintenance Capex 712
Cash and Cash Equivalents 7,965
Short-Term Debt 999
Long-Term Debt 8,222
Shares Outstanding (Diluted) 1,172

1. Start with "Earnings" not including accounting adjustments (one-time charges not excluded unless policy has changed). "Earnings" are "Operating Income.

2. Look at average margins over a business/Industry cycle: Average Operating Margin = 16.11%

To normalize margins and eliminate the effects on profitability of valuing the firm at different points in the business cycle, it is usually best to take a long-term average of operating margins. Ideally this would be as long as 10 years and include at least one economic downturn. However, since most of companies do not have as long as 10-year history, here GuruFocus uses the latest 5 years data to do the calculation. To smooth out unusual years but reflect recent developments, we take an average of the 5 year margin.

3. Multiply average margins by sustainable revenues and then adjust for maintenance SGA. This yields "normalized" EBIT:

To be conservative, GuruFocus uses an average of the 5 year revenues as the sustainable revenue.
EPV analysis recognises that part of SG&A expenditure is made to maintain and replace the existing assets, while part is made to grow sales. Since EPV is only interested in what it costs a going concern to maintain its existing asset base, it adds back a percentage of SG&A (between 15% and 50% - this is a matter of judgment and industry knowledge) to make up for the fact that some of this expenditure went to fund growth and shouldn't be accounted for. To start off, we assume 25% for the sake of prudence.
Sustainable Revenue = $ Mil, Average Operating Margin = 16.11%, Average Adjusted SGA = 1,296,
therefore "Normalized" EBIT = Sustainable Revenue * Average Operating Margin + Average Adjusted SGA = 19,330 * 16.11% +1,296 = $4410.2429 Mil.

4. Multiply by one minus Average Tax Rate (NOPAT):

Same as average operating margin calculation, GuruFocus takes an average of the 5 years tax rates.
Average Tax Rate = 13.95%, and "Normalized" EBIT = $4410.2429 Mil,
therefore After-tax "Normalized" EBIT = "Normalized" EBIT * ( 1 - Average Tax Rate ) = 4410.2429 * ( 1 - 13.95% ) = $3794.9478618065 Mil.

5. Add back Excess Depreciation (after tax at 1/2 average tax rate). This yields "normalized" Earnings:

Excess Depreciation = Average DDA * % of Excess Depreciation (after tax at 1/2 average tax rate) = 1,018 * 0.5 * 13.95% = $71.041038 Mil.
"Normalized" Earnings = After-tax "Normalized" EBIT + Excess Depreciation = 3794.9478618065 + 71.041038 = $3865.9888998065 Mil.

6. Adjusted for Maintenance Capital Expenditure:

First, calculate the revenue change regarding to the previous year. If the revenue decreased from the previous year, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
Second, if the revenue increased from the previous year, then calculate the percentage of Net PPE as of corresponding Revenue.
Third, calculate Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was negative, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was positive, then the Maintenance Capital Expenditure = Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
Fourth, GuruFocus uses an average of the 5 year maintenance capital expenditures as maintenance CAPEX.
PayPal Holdings's Average Maintenance CAPEX = $712 Mil *.
* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

7. Investors require a return of "WACC" for the risk they are taking: WACC = 9%

8. PayPal Holdings's current cash and cash equivalent = $7,965 Mil.
PayPal Holdings's current interest bearing debt = Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation = 8,222 + 999 = $9221 Mil.
PayPal Holdings's current Shares Outstanding (Diluted Average) = 1,172 Mil.

PayPal Holdings's Earnings Power Value (EPV) for Mar22 is calculated as:

EPV = ( ( Norm. Earnings-Maint. CAPEX *) / WACC + CashandEquiv - Int. Bearing Debt ) / Shares Outstanding (Diluted Average)
= ( ( 3865.9888998065 - 712)/ 9%+7,965-9221 )/1,172
=28.83

Margin of Safety (EPV)=( Earnings Power Value (EPV)-Current Price )/Earnings Power Value (EPV)
=( 28.834124002716-80.42 )/28.834124002716
= -178.91%

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.


PayPal Holdings  (NAS:PYPL) Earnings Power Value (EPV) Explanation

Assumption: Current profitability is sustainable.

Earnings power value (EPV) uses a very basic equation which assumes no growth, although it does rely on an assumption about the cost of capital as well as the fact that current earnings are sustainable. It also involves several adjustments to clean up the underlying Earnings figures.


Be Aware

Though using today's earnings in calculating Earnings Power Value, GuruFocus is normalizing these earnings to the business cycle. This eliminates the effects on profitability of valuing the firm at different points in the business cycle. This means that we are considering the average earnings over 5 years.


PayPal Holdings Earnings Power Value (EPV) Related Terms

Thank you for viewing the detailed overview of PayPal Holdings's Earnings Power Value (EPV) provided by GuruFocus.com. Please click on the following links to see related term pages.


PayPal Holdings Business Description

PayPal Holdings logo
Industry
Financial Services » Credit Services NAICS : 522390 SIC : 7389
Address
2211 North First Street, San Jose, CA, USA, 95131
PayPal was spun off from eBay in 2015 and provides electronic payment solutions to merchants and consumers, with a focus on online transactions. The company had 426 million active accounts at the end of 2021, including 34 million merchant accounts. The company also owns Xoom, an international money transfer business, and Venmo, a person-to-person payment platform.
Executives
Karbowski Jeffrey William officer: VP, Chief Accounting Officer 2211 N 1ST ST SAN JOSE CA 95131
Schulman Daniel H director, officer: President and CEO C/O PAYPAL HOLDINGS, INC. 2211 NORTH FIRST STREET SAN JOSE CA 95131
Moffett David M director C/O PAYPAL HOLDINGS INC. 2211 NORTH FIRST STREET SAN JOSE CA 95131
Yeary Frank D director C/O INTEL CORPORATION 2200 MISSION COLLEGE BLVD., RN4-151 SANTA CLARA CA 95054
Auerbach Jonathan officer: EVP, Chief Strategy & Growth O C/O PAYPAL HOLDINGS, INC. 2211 NORTH FIRST STREET SAN JOSE CA 95131
Britto Mark officer: EVP, Chief Product Officer C/O PAYPAL HOLDINGS, INC. 2211 NORTH FIRST STREET SAN JOSE CA 95131
Alford Peggy officer: EVP, Global Sales 435 TASSO STREET PALO ALTO CA 94301
Anderson Aaron officer: VP, Chief Accounting Officer C/O PAYPAL HOLDINGS, INC. 2211 NORTH FIRST STREET SAN JOSE CA 95131
Messemer Deborah M. director C/O ALLOGENE THERAPEUTICS, INC. 210 EAST GRAND AVENUE SOUTH SAN FRANCISCO CA 94080
Adkins Rodney C director IBM CORPORATION 294 ROUTE 100 SOMERS NY 10589
Sarnoff Ann director C/O HSN, INC. 1 HSN DRIVE SAINT PETERSBURG FL 33729
Donahoe John J director C/O PAYPAL HOLDINGS INC 2211 NORTH FIRST STREET SAN JOSE CA 95131
Dorman David W director CVS HEALTH. ONE CVS DRIVE WOONSOCKET RI 02895
Christodoro Jonathan director C/O ICAHN ENTERPRISES L.P. 16690 COLLINS AVE., PH SUNNY ISLES FL 33160
Mcgovern Gail J director ONE ENERGY PLAZA., 688WCB DETROIT MI 48226

PayPal Holdings Headlines

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