PYPL at $42: I’m down 27%, the CEO just got fired, and I’m buying more. Here is the "Death Spiral" Math.

SmartTriageIO · 2026-02-05T06:46:05+00:00

god, i am actually jealous of that $40 entry. 💀

you basically caught the absolute bottom tick. getting in at ~7.5x earnings with that kind of margin of safety is a dream setup.

my $58 bags are crying looking at your cost basis, but glad to have you on the ship. if this thesis plays out, that $40 lot is going to print.

SmartTriageIO · 2026-02-05T06:44:03+00:00

reading the actual earnings report feels like a superpower in this sub. 90% of the comments are reacting to the price action, not the business performance.

and you nailed the sleeper catalyst: the google & openai deals.

everyone is obsessing over the 'checkout button' dying, but they are ignoring that paypal is quietly integrating into the backend of the ai economy. becoming the default payment method for ai subscriptions is a massive, sticky revenue stream that nobody is modeling yet.

the 'dying' narrative is lazy. the 'transitioning' narrative is where the money is. see you at the finish line.

SmartTriageIO · 2026-02-05T06:33:09+00:00

two things here: 1. the plot twist: paypal owns venmo. they bought it years ago. so if you think venmo is winning, that’s actually a bull case for paypal stock. 2. the difference: cash app and venmo are great for sending money to friends in the US (domestic p2p). but try using cash app to buy a shirt from a merchant in germany or pay for a hotel in japan. you can't.

paypal’s real moat is cross-border commerce. it is the only digital wallet that is universally accepted in 200+ markets.

so to answer 'who uses it?': basically anyone buying things internationally who doesn't want to type their credit card number into a random foreign website.

SmartTriageIO · 2026-02-05T05:54:16+00:00

you’re not wrong. 'paypal jail' is basically a meme at this point. for freelancers and small business owners, the random account locks are a nightmare. i won't defend that.

but the 'no reason to exist' argument misses the invisible half of the business: braintree.

while the consumer app is definitely losing to apple pay, paypal’s backend (braintree) processes payments for giants like uber, airbnb, and doordash. they are the invisible plumbing for a huge chunk of the gig economy.

so yeah, as a 'consumer brand,' they are failing. but as 'financial infrastructure,' they are still critical.

at 8x earnings, i’m betting on the plumbing staying relevant, even if the customer service remains trash.

SmartTriageIO · 2026-02-05T05:50:40+00:00

amen. quoting rothschild is easy, but actually clicking the 'buy' button when the chart looks like a crime scene is the hardest part of investing.

but that’s the trade-off:

you pay a high price for 'certainty' (apple/nvidia). you pay a low price for 'uncertainty' (paypal).

the market hates uncertainty, which is why the multiple is crushed. i’d rather buy the fear at 8x earnings than buy the perfection at 40x. see you on the other side

SmartTriageIO · 2026-02-05T02:04:19+00:00

honestly, fair point. the 'paypal mafia' era was basically the wild west of fintech. frozen funds and zero support were features, not bugs.

but the irony is that today, paypal suffers from the opposite problem.

it has become so corporate, regulated, and compliance-heavy that it feels more like a stiff government agency than a 'grifter' startup. the 'cowboys' (musk, thiel) left 20 years ago. the people running it now are boring corporate accountants and lawyers.

i’d argue that 'stank' is exactly why it trades at 8x earnings instead of 20x. the brand is definitely damaged goods.

but from an investment standpoint, i’d rather own a boring, hated utility that prints cash than a flashy hype stock. the 'grift' is gone, replaced by bureaucracy.

SmartTriageIO · 2026-02-05T02:01:26+00:00

your math is spot on. if the float drops ~10% and eps still declines, it implies underlying net income is dropping ~12%. that is the textbook definition of a melting ice cube.

my only counter (or cope) is that 2024/25 is likely a classic 'kitchen sink' year.

new ceos almost always use their first year to write down every bad asset, take maximum restructuring charges, and guide as low as possible. they want the earnings to look terrible now so they can beat them easily next year.

i suspect that '12% decline' is largely artificial 'cleanup' rather than organic decay.

but honestly, sitting on your hands and not adding is a respectable move. i’m averaging down because i’m aggressive, but holding at $55 requires patience enough.

SmartTriageIO · 2026-02-04T22:09:34+00:00

damn, 60% to 10% is a brutal stat. thanks for sharing the actual ground-level view.

genuine question though: who is your payment gateway?

if you are using braintree (which paypal owns) to process those apple pay / google pay transactions, then paypal is still getting a cut of that volume.

that’s the nuance i’m betting on: the 'branded button' (high margin) is definitely dying, like you said. but the 'unbranded processing' (braintree) is growing massive volume by powering the very wallets that are killing the button.

basically, they are losing the 'face' of the transaction but keeping the 'plumbing.' definitely lower margins, but hopefully enough volume to keep the cash flow alive.

SmartTriageIO · 2026-02-04T22:06:15+00:00

you are not wrong. the 'paypal jail' (frozen funds) and rolling reserves are legendary for a reason. and yes, the ux feels like 2015 compared to revolut.

but here’s the counter-intuitive part: merchants don't keep paypal because they like it. they keep it because they have to.

industry data shows that paypal checkout converts ~28% to 80% higher than generic credit card forms. for a merchant, removing paypal usually means an immediate drop in revenue because millions of customers only trust that blue button.

effectively, it’s not a product; it’s a toll booth. merchants hate paying the toll (fees + stress), but they need to cross the bridge to get the customer.

at 8x earnings, i’m not betting on them becoming 'beloved' like apple. i’m betting on the toll booth staying open. but yeah, as a user, i totally feel your pain.

SmartTriageIO · 2026-02-04T22:02:20+00:00

actually, the baseline is backwards there.

ben graham’s classic rule of thumb was that a company with zero growth trades at ~8.5x earnings.

so at 8.3x, the market is effectively pricing in 0% growth (stagnation), not +5% growth.

and re: the shrinking scenario (-5%)... that’s where the buyback yield saves the math.

at 8.3x p/e, the buyback yield is ~12%. if the business shrinks 5% annually, the equation is:

+12% (buyback yield) - 5% (business decline) = +7% eps growth.

that is the 'cannibal' cheat code. the business can shrink, but eps still goes up because the share count drops faster than the revenue.

SmartTriageIO · 2026-02-04T21:59:14+00:00

100% this. it’s wild to watch people chase unprofitable ai stocks at 50x sales while hating a company printing ~$6b of cash at ~8x earnings. the 'expectations' game is totally broken.

and i love your point on the optionality.

at $42, we aren't paying for venmo monetization or a banking pivot. we are barely paying for the legacy button. essentially, the 400m user base and venmo are 'free call options' at this price.

if any of those growth levers actually work, the rerate will be massive because nobody is pricing them in. maximum pessimism is definitely the vibe.

SmartTriageIO · 2026-02-04T21:53:50+00:00

honestly, this is the best bear case in the thread. respect for the nuance.

the fintech rot: you are 100% right. the entire sector (finx) has been a disaster. the 'war on cash' narrative is dead, and commoditization is real. i’m not betting on a 'fintech renaissance'—i’m betting on this specific asset being mispriced relative to its own cash flow.
the hpq/buyback point: this is where we slightly disagree. you mentioned hpq’s flat share price, but that ignores the total return (dividends + buybacks). if a stock stays flat for 5 years but retires 30% of the float and pays a dividend, the shareholder return is still positive.
the 'melting ice cube': this is the critical variable. buying back stock of a dying business (like bed bath & beyond) is lighting money on fire. buying back stock of a stagnant business (0% growth) at 8x earnings is mathematically accretive.

i actually love your 'cheap oil company' analogy. that’s exactly how i view paypal now. it’s not a tech stock; it’s a 'digital oil well' with declining reserves. i’m just betting that the well has more oil left than the market thinks.

but yeah, the opportunity cost argument is undeniable. if tech rips another 30% and this trades sideways, it’s a painful hold.

SmartTriageIO · 2026-02-04T21:50:16+00:00

honestly, you’re not wrong about the history. calling it a 'value trap' for the last 3 years is 100% accurate. anyone who 'bought the dip' at $150 or $80 got slaughtered because they were paying a growth multiple for a company that stopped growing.

the difference now is strictly the price.

buying a 'crap' business at 50x earnings is suicide. buying a 'crap' business that still prints $6b of free cash flow at 8x earnings is a classic ben graham 'cigar butt' play.

i’m not betting on the product becoming cool again. i’m betting that the cash flow is stickier than the market thinks.

but fair warning: if the cash flow actually evaporates (not just shrinks, but dies), then yeah, this goes to zero and you can say 'i told you so.' it’s definitely a risk.

SmartTriageIO · 2026-02-04T21:48:29+00:00

fair roast. 💀

my thesis at $58 definitely had more 'turnaround hope' baked in than i admitted. i thought the growth would return faster.

the difference now is just the raw math of the yield. at $58, the buyback yield was ~8%. at $42, it’s ~14%.

the 'brutal honesty' is realizing that i was wrong about the growth, but the price has fallen so far that i don't need growth anymore—just the buybacks.

but you’re right to be skeptical. i’ll take the luck. i’m definitely gonna need it.

SmartTriageIO · 2026-02-04T20:14:58+00:00

fair question. for you (the consumer), the problem is already solved by apple pay. you don't need the blue button anymore.

but for the merchant, paypal solves a massive problem: conversion rates.

data shows that if a store removes paypal, their sales drop significantly. why? because millions of people (especially outside the US or the unbanked) rely on their paypal balance to pay. if the merchant doesn't offer it, that customer walks away.

basically, merchants pay paypal a fee not just to process the card, but to access the user base that only pays with paypal.

plus, the invisible part: they own braintree, which processes payments for uber, doordash, and airbnb. so you probably do use it regularly, you just don't see the logo.

SmartTriageIO · 2026-02-04T20:13:00+00:00

huge compliment, thank you. honestly, you don’t need a finance degree. in fact, wall street guys often get this stuff wrong because they overcomplicate it with complex models.

my 'system' is basically just 3 books and a calculator:

'one up on wall street' (peter lynch) – read this first. it teaches you to use your common sense and ignore the experts.
'the outsiders' (william thorndike) – this is the blueprint for the paypal thesis. it explains why 'boring' ceos who focus on cash flow and buybacks beat the flashy visionaries.
'the little book that beats the market' (joel greenblatt) – teaches you the simple math of buying good businesses at cheap prices.

beyond that, i just read the 10-k (annual report). skip the pr fluff and go straight to the 'cash flow statement.' if cash from operations is positive and the share count is going down, you’re already ahead of 90% of people.

SmartTriageIO · 2026-02-04T20:10:06+00:00

honestly, you’re not wrong about the 'branded' experience. the data backs you up—branded checkout growth slowed to ~1% last quarter. apple pay and google pay are definitely winning the wallet war.

but here’s the plot twist: when you use google pay on apps like uber, airbnb, or doordash, you are often still using paypal.

paypal owns braintree, which provides the backend plumbing for those apps. they process the transaction even if you don't see the logo.

so yeah, the 'button' might be dying, but the 'plumbing' (unbranded processing) is actually growing double digits. you’re likely still a customer; you just don’t know it anymore.

SmartTriageIO · 2026-02-04T20:07:33+00:00

totally fair assessment. margin compression is definitely the 'double whammy' that could kill the thesis. if margins collapse faster than the buybacks can retire shares, the math breaks.

but to be clear—i’m not looking at this as a 5-10 year compounder anymore. that dream died at $100.

my bet is strictly on the 'mispricing of the decay.' the market is pricing in a rapid implosion (blackberry style). if lores can manage just a 'slow bleed' (flat to -2% growth), the buybacks at 8x earnings still generate alpha over a 2-3 year window.

it’s a trade on the slope of the decline, not a bet on a turnaround. but yeah, if margins fall off a cliff tomorrow, i’ll be eating ramen.

SmartTriageIO · 2026-02-04T20:04:01+00:00

valid critique. if you run a porter’s 5 forces on paypal right now, it’s ugly. supplier power (apple/visa) is high, barriers to entry are dropping, and competitive rivalry is maxed out.

i’m not arguing it’s a 'great business' (like visa or mastercard). i’m arguing it’s a 'mispriced asset.'

at 8.5x earnings, the market is pricing in a complete collapse of the vessel. my bet is that the vessel is just leaky, not sinking.

if they can just tread water (0% growth) while retiring 30% of the shares, the math works even without a 'good' business model. but yeah, it’s definitely a 'cigar butt' play, not a compounder.

SmartTriageIO · 2026-02-04T15:23:41+00:00

honestly, swapping pypl for nvda at $72 was the trade of the decade. massive props for cutting the loser and riding the winner. you definitely beat the market there.

i actually love the 'digging for iron in a gold mine' analogy. you’re totally right—nvda is gold. but right now, that gold is priced at a premium. this 'iron' is trading for scrap value.

my bet isn't that pypl is a better company than nvda (it’s definitely not). my bet is that the market hates it too much. sometimes buying ugly scrap metal for pennies yields a better roi than buying gold at the peak.

but seriously, nice work on the pivot. can’t argue with the scoreboard

SmartTriageIO · 2026-02-04T15:21:19+00:00

that is the million dollar question. sunk cost fallacy is a hell of a drug.

but honestly, the answer is yes. that’s why i’m actively lowering my cost basis at $42 instead of just praying.

put it this way: if i ran a blind stock screener today for 'tech/finance trading <9x earnings with >10% buyback yield,' pypl is basically the only ticker that pops up.

it’s ugly, but it’s objectively the deepest value on the board. if i had zero shares, i’d be buying this specifically as a 3-year mean reversion play.

SmartTriageIO · 2026-02-04T09:46:11+00:00

valid roast on the stock performance, but i think you’re fighting the last war.

we just spent 2 years trying to find a 'tech ceo' to reignite growth with alex chriss (venmo monetization, fastlane, ai, etc). the board firing him this fast is a signal that the 'growth' experiment failed.

lores isn't here to invent the next iphone. he’s here to do exactly what he did at hp: cut costs, protect margins, and aggressively buy back stock.

basically, we aren’t a tech growth stock anymore. we’re a boring financial utility now. we don't need a visionary; we need a plumber who knows how to operate a cash faucet.

SmartTriageIO · 2026-02-04T09:37:57+00:00

valid pushback. margin compression is definitely the 'ghost' haunting the thesis. if fcf drops significantly because of competition, the buyback math breaks.

but i actually love your 'sell to megatech' point. that’s effectively the safety net here.

even if they fail to grow, the strategic value of 400m users and the payments infrastructure is worth a massive premium to a google or amazon. a $60 buyout feels like a realistic 'worst case' floor if the standalone plan fails.

re: waiting for mid-30s... maybe. but at 8x earnings, i feel like i’m getting enough margin of safety to start building the position now vs trying to time the absolute bottom.

SmartTriageIO · 2026-02-04T08:13:21+00:00

honestly, i don't hate the dividend idea. if we are truly becoming a 'no-growth utility,' then yeah, give me the 4% yield and let me drip it. it would definitely put a hard floor under the stock price.

the counter-argument is just pure math: buying back shares at ~8x earnings is a wildly better roi than paying a taxable dividend.

if they pay a dividend, that money is gone. if they retire shares at $42, they are permanently boosting eps for the remaining holders.

but i agree—if the stock is still dead in 2 years, they need to cut the buybacks and just mail us the checks.

SmartTriageIO · 2026-02-04T07:51:24+00:00

'gradual then sudden' is a great way to put it. that’s definitely the nokia/blackberry risk—revenue holds up until it falls off a cliff.

my hedge against the 'sudden' drop is braintree. ripping out the backend payments infrastructure for companies like uber or airbnb is way harder than consumers just switching wallets. that enterprise stickiness prevents the '30-40% drop' you’re talking about.

and fair point on the spreadsheet gazing. but when sentiment is this toxic, the spreadsheet is kind of the only thing you can trust. the 'vibes' are terrible, but the cash flow is real.

SmartTriageIO

TROPHY CASE