The interesting case of PayPal

AI Summary

Analyzes PayPal's Google partnership as a potential data-driven moat and cost-efficiency driver that trades margin for volume, and sees possible attractive long-term risk/reward with Venmo and BNPL growth.

PYPL — WATCH PayPal's Google partnership may build a two-sided data moat: payment data captured through Google integrations could make Fastlane one-click checkout hard for competitors to match. The shift to Google Cloud turns fixed compute costs into variable costs, but this strategy likely cannibalizes high-margin 'gold button' revenue in exchange for higher volume. With Venmo and BNPL monetization as additional growth levers, the author views the long-term risk/reward as possibly attractive but says more research is needed.

the real advantage for PayPal is it gives them a shot at creating a 2 sided network moat by getting the huge amount of data through the Google partnership

Score 41

Comments 23

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I know it’s an often talked about stock here mostly because it’s “cheap” but in here to focus less on valuation in this post and more about the “quality” of their business 

As someone who has for some time been unable to understand the bull case for PayPal I have recently been doing some digging and wanted to talk about a few points.

PayPal recently made deals with Google and Amex the one I really want to talk about here is the Google deal 

Their deal with Google boils down to a few points, it integrates PayPal infrastructure into the Google ecosystem which will drive TPV but is lower margin revenue for PayPal the real advantage for PayPal is it gives them a shot at creating a 2 sided network moat by getting the huge amount of data through the Google partnership that becomes the data advantage for them (card info and email for anyone who completes a payment through their payment rails on googles ecosystem) which they can then turn around and leverage that data through their “fastlane” checkout system, merchants would be incentivized to use them over competition for one click checkouts because they would have the user data to make the system work on a scale that would be very difficult for a competitor to reach 

Google gets the advantage of landing a large enterprise customer onto Google cloud, PayPal gets the advantage of moving a large fixed cost to a variable cost (only pay for the compute as they need it) which should drive some efficiency gains on the PayPal side. 

This strategy will almost certainly “cannabilize” some of their high margin “gold button” revenue they are essentially trading lower margins for higher volume and more “security” of their Business 

They also have opportunities for growth by further monetizing Venmo, and their PayPal BNPL options.

In order for them to continue to grow earnings all of this would need to create enough total margin dollars to offset what is likely the start of a slow decline in their legacy “gold button” business 

I still have more research to do but I thought this might make an interesting starting off point for a discussion on the long-term outlook for PayPal as a business, with today’s valuations it may present an attractive risk/reward spread 

Let me know what you guys think

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Ideas

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