Eclipse of the JPMorgansons? Paypal’s Digital Wave.

P2P squares the bill in a flash, and for free when using the right service. Zelle leads the space in ease and rapidity. Zelle delivers funds instantaneously for use now. Zelle is the only service offering flash cash. Remember Western Union? Neither do we. WU’s chart now reassembles a water pipe.


boggle when hearing comments such as “We like Citi Group because it’s cheap.  It sells at a 10x forward multiple.”  This crowbar-simple notion bled in yesterday morning over CNBC.  This served as twice the confusion one normally encounters.  “Banks are good–if they’re cheap,” and “value beats growth.”  Things don’t work like that, even in Gotham.


Consensus thinking continues to conclude that growth is solidly outperforming value,  and has for more than a year.  So then, Citi Group is good?  The value guy just said so.  In fact he said, “value is performing as well as growth.”


Going cheap is rarely smart.  Cheap cars, cheap food, cheap stocks–none of these pay in the long run.  Nor will Citi, relative to Amazon, or Abiomed, or Teledoc.   No?  Citi Group(NYSE: C) ytd, -6.2%, 1y 4.8%, 3y 21%, 5y, 39%.  Do you see any glory in those numbers?



Turkish Lira
The implosion of the Turkish Lira had created concern for holders of the big banks, Citi in particular. Concerns routinely bloat on the front end of a currency crash. Larger international concerns have little impact on Paypal or Square.


If Citi’s value and value rocks, why don’t the numbers prove it?  Citi(C) 5 year return 39%.  Amazon year-to-date return 63.75%.  So eight months of AMZN beats five years worth of Citi–by 24%.  A 2.56% dividend yield won’t make up for a 24% lag.  Oh, AMZN 5y return 575.11%.


Clearing the confusion in financials makes sense. But who’s going where?(SJGraphic.)


Sumner Banks.

On Monday the banks again took a beating.  Nothing new here–except the widespread under-performance, relative to real growth.  We collected ytd and one year numbers for the six top banks for out banking story.  Even after several weeks the basic picture remains the same.


Summer banking fun.  Period end as of 7-20-18.
Graphic, runnin'Banks, XX
Clearly BAC and JPM are the bank leaders. Bank performance numbers are not Gnostic knowledge. Nor are they signs of stellar growth. Stellar growth is not the realm of mature banks(SJGraphic.)



Most diversification experts will tell you that financials are a required part of any proper portfolio.  Many will also mention that “diversification reduces portfolio volatility damage.”  How can one avoid the obvious?  What does volatility have to do with long-term investing?  Very little–if anything.  A smoother ride is not the same as a prosperous one.


8-13-18. Cramer–“Nobody’s going to come in for JP Morgan–it sells for 12x earnings.  People love Square–because of things like Turkey.  We use Square at Bar San Miguel.”


-Paypal’s “Braintree” unit created Uber’s “no-hassle” billing-

Paypal did not however create the scandalous fraud Uber manufactured using the billing process.

Graphic, P2P
In the P2P solar system heat is good. Millennials use P2P and prefer Venmo, Zelle, and Paypal, and Apple Pay. Alipay is Alibaba’s platform–less used in the west. Google Pay could bust a move anytime Alphabet decides to push. Popmoney–the weakest(SJGraphic.)


-P2P payment platforms-


Every option below requires some form of hook-up; a card, an account, a bank.  Each offers free transfers, when following their particular system rules.  And the shake-out?  Circle Pay developed by Goldman Sachs is the only service that offers international P2P transfers.

Zelle transfers instantaneously.  It’s also the fastest growing.  They are the only service offering flash cash.  Zelle is also free, and easy.  Now it’s a Paypal property, like Venmo.  Nice.

Venmo is of course Paypal’s “social payments platform.”  It’s popular.  Venmo’s extra features–see who else your friends are exchanging money with.  You can also view your receipt.

Paypal’s main platform is one of the few to charge for P2P when using a debit card.  You can do it free, if using an existing Paypal balance or bank account.  Not international, nor instantaneous.  Again, you can review your receipt.

FaceClown’s Messenger is also easy, but everyone must have a debit card hooked up, and be willing to wait days for the cash.   Messenger just added Paypal as an option on their platform.  What does that tell you?

Google Pay combines Googlewallet and Android Pay features.  Buy from stores, send and receive cash.  With Goggle Pay you can also pay tolls on Portland public transit, with other cities coming on line later.  Is that important?

Circle Pay, the Goldman Sachs developed system is international, but charges a credit card fee, unless you have a bank account.  Circle Pay also allows the transfer of Bitcoin, but not buying or selling of that crypto.  It’s also slow, taking days to post.

Popmoney–pretty much a laggard.  Doesn’t store funds, it costs $0.95 to use, unless receiving.  Those requesting funds are charged regardless.  It allows no merchant purchasing, and it’s slow.  What more could you ask?

Apple Pay is rated highly for data security and authentication.  Apple’s ecosystem is powerful and beloved by the hordes of Apple fans.  Apple is Apple, yet not the dominant player, yet.  Remember that mountain of cash AAPL’s sitting on?  Same goes for Visa Checkout and Google Pay–except the true love part.  Alipay by Alibaba is not hugely popular here.

Square Cash



mars-67522_1920 (1)
Are the old guard big bank’s shoes now filling with water?  The emergence of “fintech” is roiling traditional banking. The regulatory requirements overlaying big banks present hurdles–additional compliance costs, and capital retention levels. Processors like Paypal and Square benefit.  Mobile payments fit the way people live now, and processors utilize a streamlined business model.



Q2, 2018 Results_

San Jose, Calif. July 25, 2018

Mobile payments are the cutting edge–driving clear change at the POS.


MOBILE PAYMENTS–39% OF TPV(total payment volume)

“Driven by strong mobile engagement on the platform, Paypal processed $54B in mobile payment volume, a growth of 49%.   Mobile  39% of TPV.

Retailers continue searching for instantaneous pain-free, frictionless payments at the POS(point of sale.)  Paypal’s Brain-free division created Uber frictionless payments.

Paypal sees ccompanies looking for a completely digital payment experience.  The large old guard big banks are slower, more limited in payment offerings, and often more cumbersome.  Most are however international, both an asset and a potential liability.

Market analysis shows tech companies jumping into the payments space are discovering the business is difficult to penetrate.  That difficulty is leading to partnerships with Paypal, by far the most established fintech player in this space.  Market cap. $103B.



Chart, PYPL, 8-14, X
Twin plunges below the 50-day SMA does not inspire confidence. Yet each is followed by strong V-shaped returns–bullish price action. PYPL is currently a very mixed technical bag(SJChart.)





“Venmo volume up 78%.  The ‘social payments platform,’ processed $46B. of payments over the past twelve months.  In the quarter Venmo processed more than 14B. in TPV, and increase of 78%.”



Announces $10 billion stock repurchase authorization.

Rev. 23%, to $3.86b.,  22% on constant currency.

Op. Mar.  14. 8%, NON GAAP Op. Mar. 21.3%

GAAP EPS  $0.44 29%, NON GAAP $0.58.

7.7m active accounts added, with new active accounts rising 18%.

2.3b. payment transactions–up 28%.

TPV(total payment volume)–$139b., up 29%, or 27% constant currency. 

6.1 million share repurchase, returning $500 million to shareholders.

35.7 transactions per active account, on a trailing twelve month basis.   Up 9%.

“Expanding value proposition.”


Paypal management focused on expanding the value of their brand beyond online checkout.


Merchant Services” segment volume up 30%, representing 88% of TPV. for the quarter.”  “Person-to-person(P2P) payments grew 50% to 33B. representing 24% of TPV.”  Hun?  Check the call.  We did.

“Venmo, the ‘social payments platform,’ processed $46B. of payments over the past twelve months.  In the quarter Venmo processed more than 14B. in TPV, and increase of 78%.”




Chart, PYPL, OV, 8-14
PYPL is battling to stay above both it’s 50-day SMA, and the benchmark NASDAQ($COMPX). Simultaneously the stock is solidly our-performing all six large banks. Concerns over the implosion of the Turkish Lira will likely have no impact on either Paypal or Square(SJChart.)


Graphic, Per. Proof
An arsenal of cash isn’t a guarantee of price performance, or deep penetration of the highly competitive payments space. Proof is in the numbers(SJGraphic.)




Margins reveal management effectiveness.

Translating revenue into earnings is a hell of a lot harder than it seems.


Graphic, PYPL, mar. x
The changing of the payments guard is not yet upon us. The data speaks clearly. All three are considered “large cap.” Yet, while Visa is a fully mature player, Paypal is establishing, and Square is a speculative play, with no earnings, and a forward P/E of 155. So investors face four main data points here–price, maturity, and real growth vs. potential(SJGraphic.)



Graphic, MA, Margins
Mastercard’s fundamentals are amazing. 98% return on equity, normal debt, and a peg ratio of 1.73? That price comes with a 57% 1 year price appreciation, and a 40% 1 year EPS growth forecast. MA ytd return 33%. Fabulous(SJGraphic.)




iZettle, Hyperwallet, Simility, and Jetlore.

May ’18–iZettle–2.2 billion in cash.  Paypal hopes izette will help build an “in-store presence.”  Expected Q3 close, on pending approval.

June, ’18, Hyperwallet–$400m.  Paypal hopes to “improve payout ability. and to provide enhanced suite of payment solutions to eCommerce. companies globally.  Expected Q3 close, on approval.

June ’18, Simility for $120m.  The company looks to enhance fraud protection and risk management capibilities, for merchants.  The acquisition closed in July.

In May Paypal closed the acquisition of Jetlore for 16 million.  In an effort to expand their value “beyond the online checkout experience.”   The company feels Jetlore’s “AI driven predictive platform” can “enhance and accelerate Marketing Solutions offerings–again to expand  value proposition beyond the online checkout.”

No one with a job you can track will tell you to buy an issue flying so hot it glows.  We are.  Paypal may be treated savaely–soon.  Yet Paypal sits at the trail head of our one-way maga-shift to full digital and mobile.


Investor Relations

Thanks for reading.

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