Fintech
Forget Nvidia. 2 billionaire investors just cut their positions and both bought the same Fintech stocks.
This is why billionaires are piling into PayPal.
Billionaire hedge fund pioneer Paul Tudor Jones of Tudor Investment has reduced his stake in the chip giant Nvidia in the first quarter, undoubtedly making a good profit from the sale. He then channeled that money into a new investment in a struggling fintech company PayPal (PYPL -2.98%).
Jones wasn’t the only investor to make this move, as Coatue Management’s Philippe Laffont made a similar move, reducing his stake in Nvidia and increasing his position in PayPal. The investor, worth an estimated $6 billion, invested in PayPal shares, taking his holdings from 27,200 shares at the end of 2023 to more than 8 million shares at the end of March.
Let’s take a look at what might have attracted these billionaires to PayPal, and whether investors should follow their lead and snap up the stock.
An inexpensive stock
One of the first things that likely attracted Tutor Investment and Coatue Management to PayPal stock is its valuation. The stock has had a difficult run in recent years, losing more than 40% in the last five years.
During this period, PayPal has significantly increased its revenue however; however, it has seen some pressure on gross margins over the past two years. However, this has left the stock trading at a very attractive valuation.
PYPL PE Ratio (forward) data of YCharts
The company only trades in forward price/earnings ratio (P/E) ratio of just over 15.5 times and onwards selling price (P/S) ratio close to 2 times. That doesn’t tell the whole story, as the company also has $8 billion in net cash and investments, including about $1.8 billion in equity investments. Excluding that, its forward P/E falls closer to 13.5x.
That’s an inexpensive valuation, but a cheap stock alone isn’t a good enough reason to invest in PayPal.
A turning point opportunity
The other big factor that likely attracted these billionaire investors to PayPal is CEO Alex Chriss and his plans to transform the company and position it for the future. Chriss took the reins as CEO of PayPal last September, returning from PayPal Intuition where he ran the company’s small business and self-employed group.
He quickly established himself as a strong leader by pushing PayPal to innovate. Since Chriss took over, the company has invented several artificial intelligence (AI) guided progress. Perhaps the most interesting is the Fastlane product. This new payment solution allows a merchant’s customers to checkout with one tap without having to create an account and provide credit card information to multiple merchants. Online retailers lose a lot of potential business when consumers fail to complete their purchases.
In PayPal’s early testing of Fastlane, the company says, data shows that “returning Fastlane users are converting at nearly 80%.” This is a huge win for retailers and makes a product like Fastlane highly desirable. The company will begin rolling out the product nationwide in the second half of the year.
PayPal has also introduced a number of other value-added solutions. It announced a pair of marketing-focused products, such as Smart Receipts and Advanced Offer Platforms, that will allow merchants to create personalized recommendations and personalize offers using data based on what customers have purchased in the past, on their own websites or through the market. Internet. It also introduced a fraud management solution.
With innovation, the company is also looking to change the way its solutions are priced. One of PayPal’s problems in recent years has been deteriorating gross margins, as companies have shifted more toward its lower-margin BrainTree unbranded solution. Chriss believes that the value of PayPal solutions far exceeds that of competing offerings and therefore plans to begin pricing based on value. During PayPal’s first-quarter earnings call, Chriss said that while this process will take time, the company is already having conversations with its major customers about pricing and focusing on business results.
Image source: Getty Images.
Is it time to buy stocks?
PayPal is an inexpensive stock with a solid balance sheet that has continued to grow its revenue solidly. Gross margins have been an issue, but the company clearly has a plan in place to address this through innovation and value-based pricing.
This is an interesting combination and is why the stock has started to attract the attention of renowned billionaire investors. While there is always a risk that PayPal’s new products will not gain traction or that its pricing power will be limited, given its valuation, this seems like a good opportunity to invest in the stock ahead of a potential turnaround. Therefore, now is still a great time to buy the fintech stocks.
Editor’s note: This article has been updated. Alex Chriss is the CEO of Paypal. Fastlane’s early tests show conversion rates of nearly 80%.
Geoffrey Seiler has positions in PayPal. The Motley Fool has positions and recommends Intuit, Nvidia and PayPal. The Motley Fool recommends the following options: Short June 2024 $67.50 PayPal Calls. The Motley Fool has a disclosure policy.