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PayPal Under the Spotlight: Unraveling the Web of Manipulation

Updated: May 13

In the turbulent realm of financial markets, stock prices can be influenced by many factors. From economic data releases to corporate earnings reports, market sentiment often dances to the rhythm of news and events. Yet, beneath this seemingly organic ebb and flow of stock prices lies a shadowy world of market manipulation, where actors seek to bend the market's natural course to their advantage. In this article, we dive into the intriguing story of how PayPal's stock price has been manipulated, uncovering the various strategies and forces at play and how they distorted the actual value of this fintech giant. From operating margin scares to the notion of a significantly shrinking active user base, we explore the complex landscape where PayPal's stock price is not just a reflection of financial performance but an example of manipulation.

PayPal's market price has suffered dramatically in the past year. Much of this dive was warranted because of less growth (the earnings multiple should drop in case of decreased development). However, for the last six months, PYPL has been downgraded, news outlets have been said to avoid, questions have been raised about management changes, and analysts have almost all had terrible things to say about PayPal. During this period, PayPal's stock went from 75 to 54.90 at the time of this article.

All the while, PYPL's valuation has only gotten slightly better (they raised 2023 EPS guidance to $4.98 vs $4.92 expected). Risks with the business have also decreased because of management changes, divestitures, and favorable balance sheet moves. Using the most recent report from November 1st, PayPal's Discounted cash flow value is at $77.88 (or 40% higher) using a discount rate of 8.91%. The Peter Lynch fair value calculation puts the stock undervalued by 24% (or a fair value of $68.07). Interestingly, these metrics haven't "changed" the market mind yet. Or have they?

In the world of finance, where billions of dollars change hands with each tick of the clock, a shadowy realm known as "dark pools" has emerged as a critical player. Dark pools, also called off-exchange trading, are private, hidden venues where institutional investors can buy and sell stocks away from the prying eyes of public exchanges. While these pools were initially designed to facilitate large trades with minimal market impact, they have also raised concerns about manipulation.

Taking a deep look into off-exchange trading and monitoring the accumulation or distribution occurring over time on equities is a large part of our strategy. Institutions wield a significant portion of control over stock prices. We develop some interesting figures when we use this same technique on PYPL. Paypal has had a disproportionally low short volume ratio through the last 6 months. Total off-exchange volume exceeded triple what short volume was reported in this period.

The recent manipulation of PayPal's stock price underscores the critical role that off-exchange volume analytics play in maintaining a snapshot of what institutions and short sellers are doing. By leveraging advanced analytics, we can identify unusual patterns, flag potential manipulations, and help aid investing and trading techniques. In an era of rapid financial innovation, these tools serve as one of the many means of analysis we use at the Wealth Council.

Reach out if you have any questions!

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