PayPal Holdings Inc. (NASDAQ:PYPL)

Net Operating Profit After Taxes (NOPAT)

The NOPAT experienced considerable fluctuations over the analyzed period. Starting at $1,833 million in 2018, it increased steadily to peak at $4,527 million in 2020. However, from 2020 onwards, there was a decline, dropping to $3,793 million in 2021 and further decreasing to $1,747 million in 2022. This indicates an initial growth phase followed by a substantial reduction in operating profitability.

Cost of Capital

The cost of capital showed a gradual downward trend throughout the period. It slightly decreased from 17.32% in 2018 to 16.09% in 2022. This reduction suggests a modest improvement in the company’s financing conditions or risk profile over time.

Invested Capital

Invested capital rose consistently each year from $17,780 million in 2018 to $31,496 million in 2022. The increase reflects ongoing investment or growth in assets employed by the company to generate returns, almost doubling over the five-year span.

Economic Profit

Economic profit was negative throughout all reported years, indicating the company did not cover its cost of capital with its operating profits. The losses deepened from -$1,248 million in 2018 to -$3,322 million in 2022, with an exception in 2020 where the loss was smaller (-$670 million). This deterioration highlights increasing inefficiency in generating value beyond the capital cost despite growing invested capital.

Overall Summary

While the company initially increased its operating profits and invested capital, it did not achieve returns exceeding its cost of capital in any year analyzed. The decline in NOPAT after 2020, combined with steady invested capital growth and decreasing cost of capital, led to widening negative economic profits. This suggests that the company struggled to convert its investments into sufficient profit to cover capital costs, raising concerns about operational efficiency and value creation in recent years.

Net Income

The net income displayed an overall increasing trend from 2018 through 2020, rising from 2,057 million USD to a peak of 4,202 million USD. In 2021, the net income slightly decreased to 4,169 million USD but remained close to the previous year's high. However, in 2022, net income experienced a significant decline to 2,419 million USD, nearly reverting to the level recorded in 2019.

Net Operating Profit After Taxes (NOPAT)

NOPAT followed a similar pattern to net income, increasing steadily from 1,833 million USD in 2018 to reach a maximum of 4,527 million USD in 2020. In 2021, a notable decrease occurred, with NOPAT falling to 3,793 million USD. The downward trend continued more sharply in 2022, with NOPAT dropping to 1,747 million USD, marking the lowest figure within the period analyzed and significantly below the 2018 starting point.

Overall Observations

Both net income and NOPAT demonstrated strong growth leading up to 2020, indicating a period of robust profitability. However, the years following 2020 show a reversal with considerable declines in profitability metrics. The drop in 2022 is particularly pronounced, suggesting challenges or changes in operational performance affecting the company's ability to generate profit after taxes. This downward shift merits further investigation into contributing factors such as revenue changes, cost structures, or external economic conditions affecting the company.

Income tax expense (benefit)

The income tax expense exhibited notable fluctuations over the examined period. Starting at $319 million at the end of 2018, it increased substantially to $539 million in 2019 and further to $863 million in 2020. However, there was a significant reversal in 2021, with the tax expense shifting to a benefit of $70 million, indicating a tax credit or reduction in tax liabilities for that year. This benefit sharply reversed to a substantial expense of $947 million by the end of 2022, suggesting either a change in profitability or tax strategy that led to increased tax obligations.

Cash operating taxes

Cash operating taxes followed a broadly variable trend. Beginning at $475 million in 2018, these taxes rose to $796 million in 2019, indicating an increased cash tax outflow. The figure then declined to $728 million in 2020 and further decreased to $454 million in 2021. This downward trend was reversed in 2022 with a marked increase to $1,790 million, more than tripling the cash operating taxes compared to the previous year. This sharp increase in 2022 signals a significant rise in actual cash taxes paid, which may reflect changes in profitability, tax rates, or deferred tax payments being settled.

Overall analysis

The data illustrates considerable volatility in both reported income tax expense and cash taxes paid over these years. The discrepancy between income tax expense turning into a benefit in 2021 while cash operating taxes decreased suggests timing differences or tax planning effects. The pronounced spike in both income tax expense and cash taxes in 2022 implies a substantial change in the company's tax situation or profitability, warranting further investigation into underlying operational or tax law changes affecting this period.

The financial data indicate noteworthy trends in the company's capital structure and financing over the observed period from 2018 to 2022.

Total reported debt & leases

The company’s total reported debt and leases showed a significant increase throughout the period. Starting at $2,584 million in 2018, the debt nearly doubled by 2019 to $5,472 million. This upward trend continued sharply in 2020, reaching $9,725 million, with a slower but steady rise in 2021 at $9,810 million, and further increase to $11,555 million in 2022. This pattern suggests an expanding use of debt financing or lease obligations over the years.

Total PayPal stockholders’ equity

Stockholders' equity also increased overall but at a more moderate pace compared to debt. Beginning at $15,386 million in 2018, equity rose consistently each year, peaking at $21,727 million in 2021 before slightly declining to $20,274 million in 2022. This trend implies retention of earnings and possible capital infusions, though the 2022 dip may indicate distributions, losses, or other equity reductions in that year.

Invested capital

Invested capital showed a steady growth trend across the period. From $17,780 million in 2018, it increased annually, reaching $31,496 million by 2022. This steady increase reflects the company’s growing asset base financed by both debt and equity, with the notable acceleration seen from 2019 onwards.

In summary, the data reveal an overall expansion in the company’s financial base, with a more pronounced rise in leverage compared to equity. The increased debt levels might indicate strategic investments funded through borrowing, while the equity growth confirms continued shareholder value enhancement until 2021, followed by a slight equity contraction in 2022.

Economic Profit

The economic profit showed significant fluctuations over the five-year period. Initially, it decreased from -1,248 million USD in 2018 to -1,658 million USD in 2019, indicating a worsening performance. In 2020, the negative economic profit improved to -670 million USD, suggesting a temporary recovery. However, this was followed by a decline to -1,422 million USD in 2021 and a further sharp deterioration to -3,322 million USD in 2022, marking the lowest point in the analyzed period.

Invested Capital

Invested capital demonstrated a consistent upward trend throughout the period. It increased year-on-year from 17,780 million USD in 2018 to 31,496 million USD in 2022, almost doubling over five years. The growth slowed somewhat after 2020, with modest increases between 2020 and 2022, but the overall trend indicates increasing investment in the company’s assets or operations.

Economic Spread Ratio

The economic spread ratio remained negative during the entire period, reflecting persistent inefficiencies or costs exceeding returns on invested capital. The ratio deteriorated from -7.02% in 2018 to -7.44% in 2019 and then improved significantly to -2.22% in 2020, aligning with the economic profit recovery in that year. However, after 2020, it worsened again to -4.54% in 2021 and further declined sharply to -10.55% in 2022, the most adverse level recorded, indicating weaker value generation relative to the capital invested.

Overall Analysis

The data indicates that despite continual growth in invested capital, the company struggled to generate positive economic profit throughout the period. The sharp decline in economic profit and the economic spread ratio in 2022 signals increased challenges in converting investments into economic value. The temporary improvement in 2020 was not sustained in subsequent years, suggesting possible operational or market difficulties adversely affecting profitability and returns.

Economic Profit

The economic profit exhibits a negative trend throughout the five-year period, indicating ongoing challenges in generating value above the cost of capital. The loss deepens significantly in 2019, improving somewhat in 2020, but then deteriorates again in the subsequent years, reaching the most substantial loss in 2022. This suggests increasing economic inefficiencies or heightened costs relative to returns in recent years.

Net Revenues

Net revenues demonstrate a consistent upward trajectory over the entire period. Starting from approximately 15.5 billion USD in 2018, revenues increase steadily each year, culminating in over 27.5 billion USD by 2022. This growth trend reflects a robust expansion in the company's operational scale or increased sales performance over time.

Economic Profit Margin

The economic profit margin remains negative in all years, mirroring the pattern observed in the absolute economic profit values. It declines sharply in 2019, shows some improvement in 2020 but still remains at a low negative level, worsens again in 2021, and reaches the lowest point in 2022 at over -12%. This margin trend indicates that despite growing revenues, profitability relative to invested capital is deteriorating, pointing to weakening operational efficiency or heightened capital costs.

Summary

Overall, the data reveal a company with steadily increasing revenues but persistently negative and fluctuating economic profits and profit margins. The worsening economic profit and margin in 2022, despite revenue growth, suggest rising costs, investments not yet generating corresponding returns, or other operational challenges that are impairing value creation. This calls for a detailed review of cost structures, capital allocation, and operational efficiency to improve economic profitability.