Stock Analysis on Net
Stock Analysis on Net

PayPal Holdings Inc. (NASDAQ:PYPL)

This company has been moved to the archive! The financial data has not been updated since May 9, 2023.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

PayPal Holdings Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 14.70%
01 FCFF0 5,313
1 FCFF1 5,944 = 5,313 × (1 + 11.86%) 5,182
2 FCFF2 6,589 = 5,944 × (1 + 10.86%) 5,009
3 FCFF3 7,238 = 6,589 × (1 + 9.85%) 4,797
4 FCFF4 7,878 = 7,238 × (1 + 8.84%) 4,552
5 FCFF5 8,496 = 7,878 × (1 + 7.84%) 4,280
5 Terminal value (TV5) 133,555 = 8,496 × (1 + 7.84%) ÷ (14.70% – 7.84%) 67,282
Intrinsic value of PayPal Holdings Inc. capital 91,101
Less: Debt (fair value) 9,991
Intrinsic value of PayPal Holdings Inc. common stock 81,110
 
Intrinsic value of PayPal Holdings Inc. common stock (per share) $72.70
Current share price $65.91

Based on: 10-K (reporting date: 2022-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

PayPal Holdings Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 73,537 0.88 16.34%
Debt (fair value) 9,991 0.12 2.60% = 3.22% × (1 – 19.32%)

Based on: 10-K (reporting date: 2022-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,115,713,968 × $65.91
= $73,536,707,630.88

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (28.10% + 21.00% + 17.00% + 18.00% + 12.50%) ÷ 5
= 19.32%

WACC = 14.70%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

PayPal Holdings Inc., PRAT model

Microsoft Excel
Average Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US$ in millions)
Interest expense 304 232 209 115 77
Net income 2,419 4,169 4,202 2,459 2,057
 
Effective income tax rate (EITR)1 28.10% 21.00% 17.00% 18.00% 12.50%
 
Interest expense, after tax2 219 183 173 94 67
Interest expense (after tax) and dividends 219 183 173 94 67
 
EBIT(1 – EITR)3 2,638 4,352 4,375 2,553 2,124
 
Short-term debt — — — — 1,998
Current portion of long-term debt 418 999 — — —
Long-term debt, excluding current portion 10,417 8,049 8,939 4,965 —
Total PayPal stockholders’ equity 20,274 21,727 20,019 16,885 15,386
Total capital 31,109 30,775 28,958 21,850 17,384
Financial Ratios
Retention rate (RR)4 0.92 0.96 0.96 0.96 0.97
Return on invested capital (ROIC)5 8.48% 14.14% 15.11% 11.69% 12.22%
Averages
RR 0.96
ROIC 12.33%
 
FCFF growth rate (g)6 11.86%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

1 See details »

2022 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 304 × (1 – 28.10%)
= 219

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 2,419 + 219
= 2,638

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,638 – 219] ÷ 2,638
= 0.92

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,638 ÷ 31,109
= 8.48%

6 g = RR × ROIC
= 0.96 × 12.33%
= 11.86%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (83,528 × 14.70% – 5,313) ÷ (83,528 + 5,313)
= 7.84%

where:

Total capital, fair value0 = current fair value of PayPal Holdings Inc. debt and equity (US$ in millions)
FCFF0 = the last year PayPal Holdings Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of PayPal Holdings Inc. capital

FCFF growth rate (g) forecast

PayPal Holdings Inc., H-model

Microsoft Excel
Year Value gt
1 g1 11.86%
2 g2 10.86%
3 g3 9.85%
4 g4 8.84%
5 and thereafter g5 7.84%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 11.86% + (7.84% – 11.86%) × (2 – 1) ÷ (5 – 1)
= 10.86%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 11.86% + (7.84% – 11.86%) × (3 – 1) ÷ (5 – 1)
= 9.85%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 11.86% + (7.84% – 11.86%) × (4 – 1) ÷ (5 – 1)
= 8.84%