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- A $15B on Themselves š²
A $15B on Themselves š²
PLUS: The Dumbest Selloff Weāve Seen All Year š¤¦
Stocks of the Week!
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A $15B on Themselves š²
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The Dumbest Selloff Weāve Seen All Year š¤¦

A $15B on Themselves š²
You ever believed in yourself so much youād put $15 billion on it? Sounds insane, right?
Thatās exactly what PayPal have just done.

PayPal have had a decent 6 months. I still thereās more left yet.
Theyāre betting on themselves with a monster stock buyback. After taking a look at their latest Q4 earnings, they might be onto something. š¤
The Comeback Story š„
ā Active accounts are BACK ā Added 2.6M net new accounts in Q4. Thatās two straight quarters of growth. No more bleeding users = bullish.
ā Free cash flow is Strong ā Pulled in $2.1B in adjusted FCF. Thatās 171% YoY increase. More FCF = more money for reinvestment, stock buybacks & who knows? There might even be dividends somewhere down the line.

Latest earnings for PayPal looked promising
ā Margins? Steady. ā Non-GAAP operating margin at 18%, only down 34 bps YoY. Not ideal. But definitely not a disaster.
ā $15 BILLION Buyback ā So about that $15 billion bet. The board just said, āHold my beer. Letās buy the dip ourselvesā. Then signed off on a $15B stock buyback. Fewer shares = higher EPS = more valuable shares. You get the picture.
So Why Isnāt the Stock Mooning Yet? š šļø
PYPL is trading at just 13.9x forward earnings. That is dirt cheap. Especially when you compare it to other fintechs like:
SoFi (32.6x) ā Market loves their growth story, but PYPL is the profitable OG.
Upstart (lol, never mind) ā Too expensive, too much risk.
After being in the game so long, the markets demanding a little more from Paypal before itāll get excited.
What exactly are those demands?
Consistent account growth is one of them. And PayPal are on the way there. But at this valuation? The risk-reward looks pretty tempting so Iām willing to jump in before we curve back up.
The Risks You Gotta Know ā ļø
Those demands are probably the biggest risks to more downside. Can they keep growing accounts?
Two quarters of growth is great but if we see users churning then it all gets undone. Is it likely that all those users are going to delete their PayPal accounts? Not really.
But I think even a modest slow down or fall in account numbers could tank the stock more than is warranted.
Theyāve also got some pretty big competition in the space. Apple, BNPL. That means they canāt get lazy. They need to make sure things stay lean & efficient to keep margins healthy.
Value Play With Upside
So whatās the call?
High-quality fintech stock, underloved valuation, massive FCF machine. Analysts seem in agreement that fair value is somewhere around $95-$100/share.

Analysts are in agreement of nearly 22% upside from current price
That leaves upside at just under 29%. If they keep growing accounts & use the spare cash on buybacks, that might even be conservative.
There is a healthy does of risk with it. Iām keeping position size small. Somewhere around 0.5% of the account.
I do think this is going to be a silent winner though. The market hasnāt caught on yet⦠but when it does have your spacesuit readyā¦. š

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The Dumbest Selloff Weāve Seen All Year š¤¦
Betting against irrational fears is the fastest way to big profits.
Investors are throwing a tantrum because itās scared AI will make Adobe irrelevant. The reality is the complete opposite.

Itās been a shaky 6 months for Adobe
AI is just going to superpower Adobes product suite. They already basically own the entire creative software world. Photoshop, Premier Pro, Acrobat. Any of those ring a bell?
Buying the dip here seems like a no brainer. But letās take a closer look to be sure.
Why is Adobe Taking Lās?
Two words. AI panic.
OpenAI dropped Sora. Itās an AI video generator & investors lost their minds.
Why?

Adobes product suite only gets better with AI. Not the other way around.
Because they think AI tools will make Adobeās software useless. Then Deutsche Bank decided to pile on with a downgrade, and boom. Adobeās stock was in the gutter.
But I think the marketās got this one wrong.
AI Isnāt Adobeās Enemy
If Adobe took the same approach Blockbusters took to Netflix I might be more worried. But theyāre not.
Instead of running away from AI or pretending like it doesnāt exist Adobe is running towards it with open arms.
š¹ Firefly AI is already integrated into Adobeās products. That makes design workflows faster & better.
š¹ GenStudio is Adobeās secret weapon for enterprise marketing. More AI = more users = more $$$.
š¹ AI is expanding Adobeās market, not shrinking it. Adobe is already cashing the cheques by raising prices on its AI integrated products.
Youāre left with a business thatās almost too big to fail & actually getting better with AI. I know it first hand. I use a lot of their suite to bring this content to youā¦.
Investors Sleepwalking
Hereās where it gets even better.
Adobeās forward P/E ratio is at historic lows. In plain English? The stock is stupid cheap right now.
Last time the valuation was this low the stock snapped back like one of those medieval slingshots & left shorters with watermelon on their face like herā¦

How fast Adbobeās stock bounced back from these valuations before⦠and what short sellers got
And Adobe are buying back shares like they know something we donāt. But Iām pretty sure theyāre just thinking the same thing I am.
My Plan šŗļø
Letās make this one super simple. When I list it out, itās hard to not be bullish.
ā
Unstoppable moat ā No one else has Adobeās full-suite dominance.
ā
AI is an accelerator, not a disruptor
ā
Undervalued stock ā Adobe has rarely been valued so low. Itās a good a time as any to buy in
ā
Financials are elite ā 89% gross margins, 25% net margins, 10+ years of double-digit revenue growth.
Adobe makes up 0.4% of my portfolio. Thatās going to be doubled on market open.
General consensus is thereās at least a 25% upside from current price. Adobe isnāt going anywhere. But this sale wonāt last forever.

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Thatās all! See you same time next week š
P.S Hit reply & let me know what you thought of this weeks newsletter. All feedback is welcomed ā¤ļø
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