PayPal (PYPL) went public twenty years ago in February 2002 but its stint as a public company was short lived. Just a few months after the company’s IPO at $13 per share, eBay (EBAY) decided to acquire the company for $1.5 billion much to the delight of the PayPal Mafia, that went on to found a plethora of very successful companies including LinkedIn (Reid Hoffman), Yelp (Jeremy Stoppelman and Russell Simmons), Palantir (Peter Theil) and Affirm (Max Levchin) just to name a few.
eBay spun out PayPal as an independent company in July 2015 a few months after its current President and CEO Dan Shulman joined the company after spending nearly 5 years at American Express as Group President of Enterprise Growth. Last summer, eBay severed its ties with PayPal, and the loss of this relationship put a damper on PayPal with revenue growth slowing to 13.11% in Q4 2021 and the company issued weak Q1 2022 guidance of 6% revenue growth. A combination of a broader market shift away from growth stocks and company specific events hit the stock hard. The stock, which had been on a tear in recent years and was at one point up more than 650% since the spinoff from eBay, dropped nearly 60% during the last year as you can see from the chart below.
Despite the loss of the eBay business, Q4 2021 revenue came in at $6.92 billion compared to $6.12 billion a year ago and the company reported earnings of $1.11 per share, marginally higher than $1.08 in Q4 2020. The company processed $1.25 trillion in payments in 2021 and its Venmo division accounted for nearly 20% of that payment volume. With partnerships like DoorDash, the Venmo division grew its total payment volume by 44% in 2021. GAAP EPS for 2021 was $3.52 and non-GAAP EPS came in at $4.60. Despite the weak 6% revenue growth guidance for the first quarter of 2022, the company expects to grow its revenue by 17% for the full year. Analysts estimate 2022 EPS to come in at $4.67, giving the company a forward P/E of 25.
Insiders of PayPal appear to be more optimistic about the company than investors or analysts and we saw a cluster of three insiders including the CEO purchase shares last week as outlined below. This was the first purchase by Dan Shulman since its spinoff from eBay and he was selling shares until December 2021. The interesting thing about his purchase is not just the size of his purchase relative to his net worth or the size of his prior sales but that he will have to give back any profits to the company on account of the section 16(b) short-swing rule.
The short-swing rule for insider transactions states that if a purchase and a sale occur within a six month period, the insider has to disgorge any profits back to the company. As I tweeted last week, Paypal and Dan Shulman are aware of this and explicitly call this out in the footnote of the form 4 filing. I am perplexed by his decision to buy stock despite this rule and I can only interpret it as an attempt to signal the market that he thinks the stock is undervalued.