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ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 2
Abstract
This paper provides an analysis of the financial statements for PayPal Holdings, Inc. as reported
in the company’s 10-K filing for fiscal year end 2018. The paper begins by providing a brief overview of
the company. It also provides an analysis of the future and current state of the company for 2018 and
2019, respectively. Thereafter, the paper attempts to assess the performance of the company after it went
public in 2016 by analyzing the company’s financial statements included in PayPal’s 10-K form for fiscal
year-end 2018. A statement concerning the company’s social initiatives undertaken by the company is
also included. Before concluding, an assessment of the consensus of analysts covering the company is
analyst/hedge fund manager. Finally, the paper provides a suggestion for the company to improve its
accounting transparency in its 10-K filing going forward, particularly in light of the company’s success
and efforts to expand. Sources other than the 10-K form for PayPal Holdings, Inc. are referenced and
cited as appropriate, though simply used to support the analysis of the financial statements from the 10-K
form.
ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 3
PayPal, once thought of as a complimentary business to support eBay, is now its own thriving
company. This paper provides an analysis of how well the company has performed since splitting from
eBay, Inc. and becoming a publicly traded company in third-quarter 2015 (Mac, 2015). The paper
examines the CEO’s letter to shareholders; PayPal’s 2018 Global Impact Report; relevant supporting
articles and reports obtained from the internet; and most importantly, the company’s annual report/10--K
filing as reported to the Securities and Exchange Commission (SEC). There are certain sections of the 10-
K form that are relied on extensively for the purposes of this paper, for example: the Consolidated
Balance Sheets; the Consolidated Statements of Income; the Consolidated Statements of Comprehensive
Income; the Consolidated Statements of Stockholders’ Equity; the Consolidated Statements of Cash
Flows; the Management’s Discussion and Analysis of Financial Condition and Results of Operations
section; and the Notes to Consolidated Financial Statements. The analysis of this paper examines
PayPal’s primary business operation; the future and current state of the company; the performance
analysis of the company since going public, with an emphasis on PYPL’s revenue-related line items; and
the balance sheet, highlighting management’s ability to successful effect the asset, liability and debt
structure. Thereafter, a review of shareholder’s equity is assessed, particularly PYPL’s stock repurchase
initiatives instituted over the last few years. An overview of the key social initiatives the company has
undertaken over the last few years is reviewed before the paper concludes with an assessment of the
consensus analyst recommendations for PayPal as a portfolio investment, along with an author-based
PayPal has been a well-known household name for years. However, as a publicly traded
company, PayPal is relatively new, having only recently become a publicly traded company after spinning
off from eBay, Inc. in 2015 (Mac, 2015). PayPal, or more formally, PayPal Holdings, Inc., trades on the
NASDAQ under the ticker symbol, PYPL (PayPal Holdings, Inc., 2019). As its own company, the vision
of PayPal Holdings, Inc (PYPL) is to ensure everyone in the world has access to financial services so to
ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 4
empower people and business with the opportunity to succeed in the global economy (PayPal Holdings,
Inc., 2019).
PYPL is a leading technology platform company that enables digital and mobile payments on
behalf of account holders, which consists of consumers and merchants located throughout the world
(PayPal Holdings, Inc., 2019). PYPL is available in over 200 global markets, and has 267 million current
account holders that can connect and transact financial services via the company’s open digital payments
platforms, including PayPal, PayPal Credit, Braintree, Venmo, Xoom and iZettle (PayPal Holdings, Inc.,
2019). The financial services provided by PYPL allows individuals and businesses to send and receive
money in more than 100 currencies, withdraw funds in 56 currencies, and hold balances in a PayPal
account in 25 currencies (PayPal Holdings, Inc., 2019). Access to PYPL’s platforms can done online, via
a mobile device, an app, or in person (PayPal Holdings, Inc., 2019). The company incurs revenue by
charging fees for completing payment transactions for account holders and other payment-related
services, with fees varying according the level of volume incurred (PayPal Holdings, Inc., 2019). In
addition to payment related fees, PYPL also generates revenue from fees assessed for foreign currency
exchange on transactions for accounts held (PayPal Holdings, Inc., 2019). PYPL also earns revenue
through partnerships, PayPal Credit products, subscription fees, gateway services (e.g. PayFlow Gateway
and Braintree Gateway), and other services provided to both individual consumer and merchant accounts
In his letter to shareholders, Dan Schulman, President and CEO of PYPL emphasized the
company’s primary goal of making PayPal the payment platform system of choice for mobile and digital
commerce users around the world, regardless of origin of the user’s environment (2019). According to
Schulman, PYPL wants to extend its reach, particularly through various partnership platforms to deliver
its products and services to customers around the world, especially in Central and South America, China,
In another correspondence – the company’s end-of-year 2018 earnings call - Schulman outlined
key targets for the PYPL going into 2019. For example, he anticipates that by end of 2019, PYPL will
ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 5
have more than 300 million active accounts, compared to the record setting 267 million active accounts
achieved in 2018 (PayPal Holdings (PYPL) Q4 2018 Earnings Conference Call Transcript, 2019). He
also asserted that in 2019, PYPL will continue to expand merchant and financial institution partnership,
and with a keen focus on markets in India and Japan in order to attract online payment customers in both
countries (PayPal Holdings (PYPL) Q4 2018 Earnings Conference Call Transcript, 2019). In terms of
revenue expectations for 2019, the company forecasts revenue growth of 16-17%, which will amount to
approximately $18B (PayPal Holdings (PYPL) Q4 2018 Earnings Conference Call Transcript, 2019).
GAAP earnings per share (EPS) for 2019 are expected to come in around $1.83 - $1.93, and non-GAAP
EPS to be around $2.84 - $2.91, or EPS year-over-year growth of 17-20% (PayPal Holdings (PYPL) Q4
2018 Earnings Conference Call Transcript, 2019). While PYPL expects another record-setting year in
2019, anticipated challenges include lackluster growth from eBay and uncertainties in the geopolitical
space that may likely affect expansion efforts into countries like China and Europe (PayPal Holdings
(PYPL) Q4 2018 Earnings Conference Call Transcript, 2019). Despite these challenges and optimistic
goals, with its healthy balance sheet and cash position, the company is well positioned to take advantage
of acquisition opportunities should they become available. (PayPal Holdings (PYPL) Q4 2018 Earnings
According to PYPL’s 10-K form, the fiscal year end is December 31 (PayPal Holdings, Inc.,
2019). Since PYPL is a relatively new, publicly traded company, the company’s 10-K filing only includes
financial statements for the last three years since going public, or 2016, 2017 and 2018. Before providing
an analysis of the company’s performance and management effectiveness, notable highlights for PYPL in
2018 included the following: record-setting revenue of $15.5B, up 18% from the 2017; operating margin
of 14.2%; record-setting active accounts of 267M, up 17%, which includes 38.7M net new active
accounts; 9.9B billion payment transactions, up 27%; $578b in total payment volume (TPV), up 27%; and
36.9 payment transactions per active account, up 9%. (PayPal Holdings, Inc., 2019).
ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 6
PYPL reports sales as Net Revenue, and breaks this line item out into Transaction Revenues and
Other Value Added Services. (PayPal Holdings, Inc., 2019). Transaction revenues are net transaction fees
PayPal charges individual and merchant account holders for transactions incurred on the company’s
payment platforms, and the fee charged is based on the level volume of activity , or total payment volume
(TPV) (PayPal 10-k, 2018). PYPL earns additional fees if transactions are settled in foreign currencies
between parties in different countries. Other value added services on the other hand, include net revenues
stemming from partnerships, subscription fees, gateway fees, and other services provided to individuals
and business account holders (PayPal Holdings, Inc., 2019). In addition, interest and fees earned from
loans receivables from PayPal credit, gains from participating on certain loans and advances, and interest
earned from some customer account balances are reported under this line item as well (PayPal Holdings,
Inc., 2019).
An analysis of PYPL’s consolidated income statement indicates the trend in sales for PayPal has
increased each year since the company first began filing a 10K report in 2016 (PayPal Holdings, Inc.,
2019). For instance, net revenues grew by 18% from Y17 to Y18, as compared to 21% for Y16 to Y17.
Also, further analysis shows the bulk, or 89% of net revenues are Transaction Revenues, leaving the
remaining 11% to Other Value Added Services. The composition was virtually the same in prior years,
when in 2017 and 2016 Transaction Revenues accounted for 88% of net revenues; and Other Value
Added Services for Y16 and Y17 came in at 12% for both years. In terms of by geography, the
composition of net revenues was very much the same for 2016 thru 2018, where 54% of PYPL’s net
revenues came from the U.S. market; 11% from the U.K.; and the remaining 35% came from other
countries.
While of no immediate concern, the marginal growth rates slowed for both, Transaction Revenue
and Other Value Added Services. The revenue growth for Transaction Revenues decreased slightly from
20% in 2017 to 19% in 2018, with growth in Other Value Added Services slowing more convincingly,
from 27% in 2017 down to 9% in 2018; but again, not a concerning issues given that Other Value Added
According to the company’s 10-K filing for 2018, on review of the consolidated income
statement, PYPL reported allowance provisions associated with the company’s consumer and merchant
loan receivables portfolios of $172M in 2018 and $129M in 2017. This is should be taken into account
with the company’s account receivables, which according to PYPL’s balance sheet were $313M in Y18
and $283M in Y17, an increase of 11%. The increase in account receivables likely coincides with the
increase in net revenues and the company’s strategic efforts to grow revenues, and therefore, not a
concern. Notable and aligned with the company’s allowance for bad debt mentioned above was that
94.9% of the accounts receivable for PYPL’s consumer loan portfolio as reported on the balance sheet for
2018 were current (i.e. not past due), and were 96% in 2017. Therefore, by year-end 2018, PYPL only
had about 5% of its receivables that were past due from the original due date. This reflects management’s
exemplary collection process. The percent of accounts receivables due that are current, but related to the
company’s merchant loan portfolio is also remarkable at 91% in Y18 and 87% in Y17. So, for year-end
2018, only 9% of the company’s accounts receivables for merchant accounts were past due. A further
analysis indicates that collection of receivables for the consumer loan portfolio in 2018 improves to 97%
for monies received within 60 days, and for its merchant loan portfolios, it improves to 95% for 2018 for
monies received within 60 days of the due date. PYPL does charge off accounts receivables after 180
days past due of the original due date for accounts receivables held in its consumer loan portfolio; and for
its merchant loan portfolio, accounts receivables held 180 days from when the company expects not to
receive payment, or 360 days from the original due date, are also charged off.
Also, since PYPL is primarily an on-line service company, PYPL does not have any inventory to report
PYPL’s current liabilities increased by 13% from Y17 to Y18, mostly due an increase in notes
payable of $1B in Y17 to $2B in Y18. According to the company’s 10-K filing, the increase is associated
with renewing a 364-day unsecured, credit facility, which increased the principal amount from $3B to
$5B. In addition, PYPL drew on the loan twice totaling $2B; but paid down $1B of the facility. This left
an outstanding balance of $2B as of Y18. Therefore, at year-end, PYPL had $3B available to still draw
ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 8
from this loan. The interest on the credit facility is a variable rate of 1-month London Bank Offered Rate
(LIBOR) plus 1.125% (PayPal Holdings, Inc., 2019). The total interest and fees reported from having
drawn on the credit facility in 2018 was $72M, which was based on a weighted average of the variable
interest rate of 3.34% for the end of 2018 and 2.78% for the end of 2017 (PayPal Holdings, Inc.,
2019). While the company has other credit facilities in place to draw from if necessary, for example, a
$2B, 5-yr revolver and approximately $300M in aggregate loans (PayPal Holdings, Inc., 2019), it had no
other outstanding loan balances outside of the $5B credit facility at year’s end. It is worth mentioning that
according to the company’s 2018 10-K filing, PYPL has an amortized schedule of lease commitments
totaling $664M (2019). However, given that its beholden to $664 in lease commitments, plus $2B for the
outstanding loan balance from the $5B credit facility, when taken into account that the company’s cash
position and short-term investments total over $9.1B, PYPL has more than adequate coverage - nearly
three-and-a-half times (3.4x) - to accommodate the company’s total outstanding debt commitments.
According to PYPL’s consolidated balance sheet for year-end 2018, the company authorized 4
billion in common stock for sale, where 1.2 billion were issued, which left 2.8 billion in common stock
outstanding (PayPal Holdings, 2019). Note: authorized stock is the total amount of stock a company
allows to be sold/purchased; whereas issued stock is stock that has actually been sold/purchased from the
authorized stock; and outstanding stock, is the balance of stock still available for sale after accounting for
the initial authorized stock less the stock that has been sold/purchased/issued. Also, a point worth
mentioning is PYPL’s stock repurchase program. Beginning in 2016, PYPL announced a series of stock
repurchase plans, which began by authorizing to repurchase $2B of its common stock (PayPal Holdings,
Inc., 2019). Then in 2017, it announced it would repurchase another $5B in common stock (PayPal
Holdings, Inc., 2019). In early 2018, PYPL agreed to have $1B of its common stock repurchased by a
third-party financial company; and at the end of 2018, PYPL announced an additional $10B of its
common stock would be repurchased (PayPal Holdings, Inc., 2019). For reporting purposes, PYPL
reported the repurchase stocks in its 10-K filing for 2018 as treasury stock, and declares that it has not
retired any of the shares that were repurchased (PayPal Holdings, Inc., 2019). While the company has an
ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 9
aggressive stock repurchase plan, according PYPL’s 2018 10-K filing, it does not have a dividend payout
plan, nor does it anticipate starting one (PayPal Holdings, Inc., 2019).
As alluded to earlier, PYPL’s vision is to “democratize financial services for individuals and
businesses around the world” (PayPal Holdings, Inc., 2019, p. 3). The vision and company’s core values ,
Collaboration, Inclusion, Innovation, and Wellness (PayPal Holdings, Inc., 2019), are an important
element in most aspects of the company’s operations and activities. To imprint the importance of these
virtues, accompanying the company’s letter to shareholders and the annual report, PYPL includes a
Global Impact Report to shareholders to detail the social initiatives the company considers important. For
instance, PYPL proudly notes in its Global Impact Report for 2018 that over 50% of its board consists of
women and unrepresented ethnic minorities (2019). In addition, the report notes that more than $9.6B was
donated to charitable causes via the company’s PayPal platform, with $98M alone from the company’s
#GivingTuesday program ( 2019). The report also mentions that PYPL actively supports programs that
encourage economic development, for example, PayPal Working Capital, PayPal Business Loan, and the
recently launched Funds Now initiative; and more recently, how PYPL launched a program called the
Small Business Month to assist small businesses throughout the U.S. (2019).
While the holistic and positive tone of Shulman’s letter to shareholders encapsulated the
optimistic outlook PYPL has for itself for 2019, particularly in regard to the prospects for higher
growth and another record setting year for a company with no immediate concerns from prior years to
encumber growth strategies, Wall Street seems to share the optimism. According to the website for
the National Association of Securities Dealers Automated Quotations market (NASDAQ) , the
section which measures the consensus recommendation of a stock points to PYPL as a “strong buy”
(2019). In addition, the NASDAQ website also confirms that analyst firms covering the company, for
example, reputable financial institutions like Bank of America, Cantor Fitzgerald, Edward Jones,
Oppenheimer, Raymond James, SunTrust, and Well Fargo just to name a few, also recommend PYPL
as a “strong buy” (2019). Also, while not listed on the website as analyst firms recommending PYPL,
ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 10
Black Rock, JP Morgan, Fidelity, T.Row Price and Vanguard can likely also be added to the list of
firms recommending PYPL as a “strong buy” as these financial institutions are the five largest
shareholders of PYPL stock as of 1Q19 (PayPal Holding, Inc. - Institutional ownership, 2019).
I, myself adamantly concur with recommending PYPL as a “strong buy.” The company’s
stellar revenue performance, exceptionally strong cash position and effectiveness in managing its
operating activities (e.g. operating margin of 14% and 16% in Y18 and Y17, respectively) and debt
clearly makes for a strong case to invest in this company over the next year. Making for an even more
compelling case is PYPL’s aggressive stock repurchase programs, which indicates the company is
prepared to only defend itself, but invest in itself as well0. Such an aggressive stock repurchase plan
is a clear signal that PYPL’s leadership is very confident in the company’s future prospects. While
the short-term horizon is quite promising, the long-term horizon is equally true. According to hedge
fund manager and stock analyst, Paul Mampilly, who also recommends PYPL as a “strong buy’, the
market for mobile payments is expected to grow to $4.6T by 2023; compared to $450B in 2015 and
$1T in 2018 (Mampilly, 2019). Also, millennials are the largest demographic group in American
history (Mampilly, 2019), and account for one-third, or 2 billion of the world’s population (Mampilly,
2019). In addition, according to the Pew Research Center, with median income of $69K, millennials
are the highest wage earnings of any other generational group today (Mampilly, 2019); and after
considering that millennials currently account for $1T in annual spend, which is expected to grow by
25% as they enter their middle ages (Mampilly, 2019), the growth prospects for PYPL are
extraordinary.
An analysis of PYPL’s recent acquisitions suggests that the company has already targeted
millennials as its core market. For example, according to Mampilly, 94% of millennials are users of
mobile-payment, and Venmo is the most widely downloaded mobile-payment app (2019). Venmo has
recently secured contracts with millennial favorites, for example, Hulu, GrubHub and Chipotle to name a
few (Mampilly, 2019). Also, Xoom is now the number two industry leader for international money
ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 11
transfers, only behind Western Union; and focused on marketing to millennials by signing Olympic track
star Usain Bolt as its global brand ambassador (Mampilly, 2019). Therefore, given its success,
millennials as PYPL’s target market, its aggressive focus to expand its current markets abroad, and to
become the de facto payment service provider in the world, PYPL stands to become the industry leader in
PYPL did a great job of explaining the major changes in sales, profits, and the company’s
financial position in the company’s 10-K form. However, as the prospects of PYPL’s success continues to
grow, the company may want to consider breaking out net revenues to highlight the business segments to
provide transparency regarding the source of those revenues, for example, the amount of net revenues
coming from PayPal, Venom, eBay, Xoom, Braintree, Paydiant, Hyperwallet, iZettle, etc., particularly
given that all have different customers and business strategies. This will be especially vital as the
company continues its acquisition spree and adds other segments; further differentiates itself from eBay;
and continues to gather attention from Wall Street, and soon enough, Main Street as well.
From an investor perspective, it is important to have a better understanding of where the bulk of
sales come from; for instance, how much of total revenues come from sales from eBay? How much came
from payment platforms such as Venmo, Xoom, Braintree, etc.? How much in revenues were attributed to
ancillary sources like currency exposures? Gathering such information will provide a better understanding
of the risks surrounding the operating activities of the company. It also provides insight into
managements effectiveness to navigate challenges. Finally, it highlights the influence a segment may
have on the company’s profitability, and the degree of diversification/correlation the company has on its
stream of revenues. As a case in point, PYPL states that in 2019 the company expects to surpass record
revenues set in 2018. However, in another section of the report, it also states it expects eBay to have a
challenging year in 2019. So, a fair conclusion is PYPL is expecting spectacular growth from other
segments, and not much, if any from eBay. Given that it has control of these other segments and not
eBay, how does this affect the relationship with eBay going forward, particularly as a company now
separate and distinct from eBay? Are there plans in place to further change the current partnership with its
ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 12
not-so-long-ago parent; and if so, are those plans to change unique to eBay, or across the entire merchant
account spectrum?
ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 13
References
Mac, R. (2015). As PayPal Goes Public Again, CEO Hints At Working With Amazon And Sets Sights On
public-again-ceo-hints-at-working-with-amazon-and-sets-sights-on-acquisitions/#12757aaa4ec3
Mampilly, P. (2019). Triple Your Wealth With This Digital Dollar Leader. Delray Beach, Florida. Banyan
Hill Publishing.
PayPal Holdings, Inc. (2019). Combined 2018 Annual Report and 2019 Proxy Statement. Retrieved from
https://investor.paypal-corp.com/sec-filings
PayPal Reports Fourth Quarter and Full Year 2018 Results. (2019). Retrieved from
https://www.businesswire.com/news/home/20190130005791/en/
https://money.cnn.com/quote/shareholders/shareholders.html?symb=PYPL&subView=institution
al
PayPal Holdings (PYPL) Q4 2018 Earnings Conference Call Transcript. (2019). Retrieved from
https://www.fool.com/earnings/call-transcripts/2019/01/31/paypal-holdings-pypl-q4-2018-
earnings-conference-c.aspx
PayPal Holdings, Inc. Stock Research - Analyst Summary. (2019). Retrieved from
https://www.nasdaq.com/symbol/pypl/analyst-research
Note: unless otherwise stated in the paper, the main source of this paper is, “PayPal Holdings, Inc.
(2019). Combined 2018 Annual Report and 2019 Proxy Statement. Retrieved from
Figures
Figure 1.
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Figure 2.
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Figure 3
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Figure 4
ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 18
$0.0001 par value; 4,000 shares authorized; 1,174 and 1,200 shares outstanding as of
(2) Dec. 31, 2018 and 2017, respectively
(3) at cost, 91 and 47 shares as of Dec. 31, 2018 and 2017, respectively
Figure 5
ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 19
Figure 6
ANALYSIS OF PAYPAL HOLDINGS, INC’S 2018 YEAR-END 10-K REPORT 20
Figure 7