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What PayPal Could Offer Investors in 2018

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Dec. 4 2020, Updated 10:52 a.m. ET

PayPal grows faster than its parent, eBay

PayPal (PYPL) outperformed several of its main challengers in 2017. While the stock rose 86.5%, Square (SQ) rose 154.4%, Amazon (AMZN) rose 56%, and Apple (AAPL) rose 46.1%. Alternative loan peer LendingClub (LC) fell 21.3% in 2017. PayPal’s parent, eBay (EBAY), saw its stock rise 27.1%.

Could investors expect more from the company this year? If you ask PayPal chief financial officer John Rainey, the answer is yes. At the Credit Suisse 21st Annual Technology, Media & Telecom Conference. Rainey offered a peek at PayPal’s views on capital allocation, which could give investors an idea of what to expect.

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Properly allocating is as important as generating cash

In Rainey’s view, being able to generate cash isn’t enough. How a company allocates the cash it generates is “very important to the creation of shareholder value.” Therefore, PayPal prides itself not just on being able to generate billions of dollars in free cash flow every year, but also on how it uses that cash to attract more growth and maximize value for shareholders.

Rainey stated that PayPal generates more than $3.0 billion in free cash flow per year, and that amount is increasing ~20% annually. Therefore, he sees PayPal’s free cash flow rising to $4.0 billion–$5.0 billion per year in the next few years.

PayPal to free up more cash

Historically, PayPal has allocated more than 50% of its cash flow to fund its loan business. However, as the company has recently entered into a deal with Synchrony Financial (SYF) to purchase a significant portion of its loan portfolio, more cash is expected to be freed up, which could pave the way for PayPal to invest in more growth and return more value to shareholders. In 2017, PayPal’s board authorized a $5.0 billion new stock repurchase program.

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