What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing on february 1st 2022 paypal reported revenue growth of 13 and gave first quarter guidance for revenue to grow by only six percent. The slowest growth for the company in recent memory, ceo dan shulman, immediately, came up with a whole host of excuses for the disappointing growth. He blamed everything from supply chain issues to inflation, to the resurgence of kovit. Investors did not take kindly to this with the stock falling more than 20 the day after earnings jim cramer, who has long been one of the biggest paypal bulls, said that the quarter was a complete disaster, and investors have now lost trust, ensurement, and things only got Worse after the earnings release, the stock continued to grind lower falling by another 40 percent.

This brings the total losses from the all-time high to 74 percent. Wiping out 260 million dollars of market value. Paypal is responsible for revolutionizing. The online payments industry is one of the biggest beneficiaries of e-commerce and the rise of cross-border transactions.

It was one of the best performing stocks in the entire market since it went public in 2015, reaching a peak valuation of 350 billion dollars in this video we'll go over. What paypal does how it grew to be so dominant and why the stock has now lost three quarters of its value. This video is brought to you by manscape.com the premium brand for men's grooming and hygiene. Manscaped has long been renowned for its leading edge, lawn mower.

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All in one storage package for easy travel now, that's a nice package go to manscape.com today and get 20 off plus free international shipping. When you use promo code wall street at checkout, your balls will thank you and now back to the video paypal was formed in 2000, when elon musk merged his internet payments, company x.com with another company co-founded by peter thiel and a few others. The company was renamed paypal and created the first way for people to send and receive money via email. This was during the dot-com bubble when valuations were sky-high and emerging internet companies were flushed with cash from their ipo proceeds.

Just two years after being founded, ebay acquired paypal for 1.5 billion dollars to integrate it with their ecommerce platform. The paypal acquisition was very successful for ebay quickly becoming the most popular way for ebay customers to pay for their purchases outside of ebay. More and more stores, both online and brick and mortar started. Accepting paypal, helping the platform's revenue to search eventually making up half of ebay's total revenue.

Paypal was becoming a leading online payment processor for all online transactions, while paypal had great potential ebay, viewed it mostly as a tool to augment their ecommerce platform as opposed to a profit center in its own right. This was fine, while ebay was growing, but by the 2010s the e-commerce market was getting more saturated and they started to lose market share to amazon. In 2015 activist investor carl icahn bought a stake in ebay and pressured them to spin off paypal as an independent company. He recognized what a valuable asset paypal was, but under the slow, moving and bureaucratic leadership of ebay, it could not recognize its full potential.

In 2015, ebay caved to icons, pressure and spun off the company. This turned out to be a great move with paypal stock price. Massively outperforming ebays over the next five years with the autonomy to function independently, they start innovating rapidly. They created a mobile app that allows customers to send and receive payments directly to other individuals with paypal accounts.

Since 2014, paypal's total payment volume tripled from 50 billion dollars per quarter to 300 billion dollars. Paypal generates revenue by charging a percentage fee to merchants who accept paypal transactions. Thus, their revenue growth is in line with their payment volume growth. Most of this growth has come from more and more ecommerce sites, including paypal as an option on many stores.

You can opt to use either credit or debit card or paypal, as your payment option just about everyone has either a credit or debit card. So why do stores also accept paypal? What is the reason for paypal to exist? The traditional payment processing system is very complicated when you use a debit or credit card to purchase something from a merchant. The money doesn't go directly to them. The money comes from a bank account.

Your card is associated with, for example, bank of america. The money is then sent to a so-called acquiring bank, with fis being the largest one in the u.s. The acquiring bank sends the money to the merchant's bank account. All of this is facilitated by someone like visa or mastercard.

Every party involved charges a fee with the merchant getting two to three percent less by the time he goes through all these intermediaries. This all happens within a couple seconds. The reason that so many steps are involved is because the parties have to communicate with each other to make sure there's enough money in your account to fund the transaction and flag the transaction. If it looks to be fraudulent, paypal works differently.

If you want to purchase a product from a merchant using paypal, the money comes from your paypal, digital wallet. The paypal wallet is funded through your funding sort such as a bank account paypal pays a transaction fee to the bank to receive the funds. Paypal then transfers. The money from your paypal wallet to the merchant's business account merchants can use paypal to process visa and mastercard payments as well.

In this case, paypal must also pay fees to them. Paypal charges the merchant a flat fee of roughly 3 on the transaction amount. In most cases, this is slightly higher than what you would pay under a traditional system, given that the fees are slightly higher. Why do so many merchants opt to accept paypal for small businesses? It can be simpler to open a paypal account instead of dealing with a traditional merchant acquirer.

As paypal's know, your customer protocols are generally less stringent for large corporations. This isn't much of a problem at all and they can usually negotiate lower fees from the acquiring banks. So why use paypal paypal offers a wide range of functionalities for consumers on your paypal wallet you can access their buy now pay later offering called pay infor. This allows users to pay for a product in four interest-free installments.

It supports paying for things in crypto, touch-free payments using qr code and various other features, making it easier to split bills with friends because of these conveniences. The number of consumers with paypal accounts has increased steadily over the years from 100 million in 2010 to more than 400 million. Today, consumers are more likely to buy a product if the merchant accepts paypal. According to a recent survey, 59 of paypal users have decided against purchasing a product when they went to check out and saw that paypal was not accepted.

This is especially true for smaller online merchants. Consumers are reluctant to give their credit card information to websites and fear that it could be hacked by using paypal. Your credit card info is only seen by paypal. Not the merchant paypal benefited tremendously from the pandemic, as consumers shifted their shopping.

Online paypal is mostly used by e-commerce merchants, but what caused the dramatic moves in the share price from the beginning of the pandemic to the peak in 2021, the stock price increased by 150 percent and has since fallen by 75, giving up more than all of its Gains from 2019 to 2021, their revenue increased by 43 from 18 billion dollars to 25 million dollars their profits increased by a similar amount. It's pretty clear to see that their stock price got ahead of itself, at least with the benefit of hindsight. At the peak share price, the price earnings ratio was about 70 times, which means that the stock was priced for perfection. They gave full year revenue growth guidance of 12 for 2022, which is the lowest growth rate they've had since being spun off by ebay.

Seven years ago, part of this is because people are going back to brick and mortar stores, so e-commerce growth is decelerating significantly, but what's even more concerning is increasing competition in the payment processing space. Remember that ebay used to own paypal, even after the split off ebay, agreed to continue using paypal as their preferred payment processor until 2020., since 2020 ebay has been gradually phasing out paypal and starting in 2021, they banned sellers from accepting paypal altogether. Given the benefits of paypal and ebay's long history with them, this came as a big shock in the industry. Ebay is replacing paypal with their own system, called ebay, managed payments, customers will use their debit or credit card to make a payment and ebay will be in charge of processing it.

There are a couple benefits to ebay in the past ebay charged a 10 fee on all items sold through their platform. In addition, sellers would have to pay a 2.9 fee to paypal for a total of 12.9 percent with ebay's internally managed payments, they'll be charging twelve point, seven percent, so sellers get a point, two percent benefit, which is not much. The two point: nine percent that went to paypal ebay, never saw a penny of it. Now that ebay is charging for it directly.

Their revenue goes up 27 percent. Of course, they also have greater expenses. They contracted with a dutch payment processor called adia to manage the payments on the back end, while they haven't disclosed the terms of the deal publicly. It's safe to assume that addion is charging ebay less than 2.7 percent, otherwise they wouldn't have made.

The switch ebay also has flexibility to change the checkout method in each market that it serves, for example, in australia. They integrated after pay, which is the leading, buy now pay later service in that country into ebay, managed payments. This caused a large increase in sales and would not have been possible if they were still using paypal. Ebay made a decision that the 2.9 fee that paypal charged was too much and they were better off making their own system, which they had control over.

In the fourth quarter of 2020, ebay made up ten percent of paypal's revenue. It has since declined three percent and is on its way to zero. Paypal has diversified its revenue base enough such that this is not a catastrophic loss, but it is emblematic of a large problem. Paypal created a user base of 400 million consumers.

Some merchants, especially smaller ones, are willing to stomach higher fees to get easier access to these consumers, but others like ebay, are not they're likely reaching something of a saturation point where it'll be harder for them to grow at double-digit percentages going forward after the recent fall Paypal is trading at roughly 26 times earnings multiple. This is still higher than the s p, 500, but not egregiously. So their days of 20 revenue growth are probably behind them. Paypal has now transitioned from a growth stock to a value stock, all right guys that wraps it up for this video.

What do you think about paypal was the 75 decline in share price justified? Let us know in the comments section below, as always. Thank you. So much for watching and we'll see you in the next one wall, street millennial, signing out.