sign in sign up
<<
Home , Braintree (company), Venmo

PayPal Holdings Inc. NDIC – March 5th, 2020 Scott Elliott & Noah Cha

Recommendation: BUY Investment Thesis

Recommendation: PayPal (NASDAQ: PYPL) may represent significant upside due to its potential for growth within the expanding electronic payments space and likely improvement in the monetization of its developing companies 1 PYPL has a massive TAM and likely will continue to gain share in the fastest growing area of payments • Potential for new marketplaces following expiration of eBay operating agreement • Strategic partnerships and international expansion that drive volume growth • Infrastructure and partners to reduce friction through the development of electronic B2B payment systems 2 High potential for the improved monetization of

3 is an underappreciated asset and has extensive potential for growth

Price Target: $135.4 Implied Upside: 20.85%

2 Electronic Payment: the Players

The Merchant The Technology The Customers Works with merchant acquirer, A payment gateway connects the The transactions behind which sets up the merchant with merchant’s website to a payment electronic payment processing a payment processor processor, which moves the are all behind the scene from the transaction from point A to point B customers’ points of view – checkout is fast and secure

3 Electronic Payment: the Payment Process

Step 1: Customer Pays Step 2: Encryption Step 3: Authentication

Customer makes a purchase on Customer’s personal information Payment processor validates that merchant’s website using a debit and payment transaction data is payment data is being sent by its or encrypted as it moves through claimed source the payment gateway

Step 4: Authorization Step 5: Settlement Step 6: Merchant is Paid

Payment processor requests Occurs when the card issuer Funds are accessible in the issuing bank to authorize specific sends the appropriate funds to vendor’s merchant account amount of funds from the the merchant’s acquiring bank, customer’s account which deposits them into the vendor’s merchant account

4 Where does PayPal fit in?

Customer Merchant Solution Encryption Authentication Authorization Settlement Payment Payment

✔ ✔ ✔ ✔

✔ ✔ ✔ ✔

✔

✔

5 PayPal Overview

▸ Formed in 1998, operating as Confinity ▸ In 2002, first IPO as PayPal and soon acquired by eBay ▸ Became standalone company in 2015 ▸ Global payments platform featuring two-sided networks (PayPal, Venmo, and Xoom), merchant acquiring platform (Braintree), and merchant and consumer credit offerings through PayPal Credit and offline payments through iZettle

$20,000 22.0% Company Description $18,000 21.0% $16,000 • Core business that makes up $14,000 20.0% largest customer transaction revenues $12,000 19.0% $10,000 • ~23mm merchant websites and ~300mm+ active customers $8,000 18.0% $6,000 17.0% • Modern merchant acquirer with $4,000 emphasis on mobile eCommerce 16.0% $2,000 • Accept and process cards, PayPal, $- 15.0% Venmo, , etc. through one 2015 2016 2017 2018 2019 integration

Total Revenue EBITDA EBITDA Margin % • service primarily P2P • “Pay with Venmo”, Instant Transfer, and Venmo Card

82% 18% 10% • International P2P money transfers • 56 markets worldwide • Fees can be 50% than traditional methods • Merchant and consumer loans • PayPal Business Loan ($5,000 to 90% $500,000) • PayPal Working Capital ($1,000 to Cross Border TPV Transaction Revenue $125,000) OVAS Revenue Domestic TPV

CapitalIQ, 10-k, Bloomberg 6 TAM Assumptions and Rationale

Global eCommerce Transaction Values ($mm) TAM 2019 ($b) $8,000,000 $6,699,201 $7,000,000 $6,094,311 $6,000,000 $5,440,455 2% 11% $4,769,370 1% $5,000,000 $4,137,523 $3,595,330 $4,000,000 $3,168,158 $3,000,000 41% $2,000,000 20% $1,000,000

$0 2017A 2018A 2019A 2020E 2021E 2022E 2023E

1% 4% Digital Commerce Mobile POS Payments

3% 17% -Term Share Drivers

• Potential for new marketplaces following eCommerce, ex AMZN Online Travel eBay operating agreement Core Markets, BABA & JD Ride-Sharing Food Delivery • Global expansion of PayPal’s full capabilities Online Event Ticketing Online Charitable Donations

Streaming Media Subscriptions Video Gaming • Growth into B2B payments market Crowdfunding

Statista, Credit Suisse Estimates 7 New Marketplaces

eBay Operating Agreement

• Management has stated that there are large marketplaces that PayPal is prohibited from working with due to its operating agreement with eBay

• Operating agreement was created in 2015 to maintain synergies and provide strategic flexibility for the two firms

• The agreement expires in July 2020 and PayPal has no intention to resign

• Under the operating agreement, PayPal was barred from working with fast-growing, next-gen marketplaces, and it is highly probable that both “…And also remember, there are other big Amazon and are among these companies marketplaces out there that we're prohibited from working with because of the operating agreement…but those marketplaces are Potential New Marketplaces ready to start partnering with us…” - Dan Schulman, CEO, April 24, 2019, on the Q1 2019 • High potential for partnership with Amazon in earnings call marketplaces where it is not dominant, developing, or does not offer Prime services

• Amazon sources 92% of revenue from US, UK, Germany, and Japan

• The 8% outside of these markets represents a $33b international volume opportunity for PayPal in 2020E

• 2018 acquisition of Hyperwallet strengthens its position with possible marketplace partners

CapitalIQ, 10-k 8 PayPal: Not a Bank Competitor

Pre-2016 Card Network Agreements ▸ PayPal was viewed as a disintermediary threat to card networks and card issuing partners ▸ PayPal encouraged users to fund transactions with their bank accounts (ACH) – Card networks and banks missed out on interchange income and interest income on credit cards Strategic Bank Partnerships Insulate PayPal from NeoBank Competition and Post-2016 Card Network Agreements Drive Volume for Both Parties ▸ Approach to payments ecosystem changed under Dan Schulman ▸ PayPal transformed into a top digital distribution channel for banks, which are now a key source for PayPal’s TPV and user growth

9 PayPal’s Strategic Partnerships

PayPal’s global partnerships drive volume growth and create a network effect within their payments ecosystem

U.S. 2017 2016 2018

Asia Pacific/Europe

10 Global Expansion of PayPal’s Full Suite

Strategic International Investments Differentiated Value Proposition ▸ Commercial agreement with MercadoLibre expands PayPal’s ▸ Operates on a massive two-sided payment platform: Latin American presence and Xoom’s reach in Brazil and ~300 million consumers and ~23 million merchants globally Mexico ▸ Helps small eCommerce merchants compete: ▸ Paypal’s recent acquisition of GoPay made it the first non- industry leading mobile checkout conversion rate (89%); full Chinese payments company licensed to provide online suite of commerce solutions through a simple integration payment services in China process ▸ Paypal’s Chinese payments license enables the company to ▸ Honey acquisition: will bolster PayPal’s conversion rates offer payment solutions to Chinese businesses and consumers and enable merchants to target specific consumer through existing relationships with China UnionPay and demographics with personalized offers AliExpress – 2016 AliExpress partnership: enabled users outside of China to shop on AliExpress; ~50% of AliExpress merchants accept PayPal

PayPal’s Conversion Rates vs. Others, Per Cent Untapped Countries ▸ PayPal operates in over 200 countries, but its full suite of capabilities is only available in about 10, presenting significant room for growth PayPal Conversion Other Digital Wallets Overall Conversion

48.7 55.3 88.7 Business-to-Business (B2B) Opportunity

Significant Opportunity • B2B payments volume approximately $120 trillion per year globally and roughly $22 trillion per year domestically • ~$1tr of U.S. B2B payments done through card • Significant benefits for businesses as provides significant workflow automation, reduces labor costs and human error, and increases productivity

PayPal Investment • PayPal has signed numerous B2B partnerships over the past few years (Sage, Reckon, OroCommerce, Xero, etc.) • PayPal Commerce offers B2B payment experiences across credit cards, PayPal, debit cards, alternative payment methods, PayPal Credit, and Pay with Venmo • PayPal continues to invest in this developing and open market

12 Braintree as an Underappreciated Asset

Braintree’s Strategic Advantages Key Merchants ▸ Enables a merchant to accept PayPal (and Venmo), credit cards, debit cards, ACH (online bank transfers), and other forms of payment (Apple Pay, , ) through a single contract and integration

▸ Known for ease of use within developer community, resonating with start-ups and smaller merchants

▸ Leverages the scale and reach of PayPal’s resources and partnerships

Significant Runway for PayPal Integration Braintree Revenue vs. PayPal Total Revenue 37% ▸ Only about one-third of Braintree’s largest merchants accept $9.0 34% 40% PayPal $8.0 31% $7.0 27% 30% $6.0 23% 32% – Presents significant opportunity for growth as PayPal’s 29% $5.0 27% differentiated value proposition and massive payment 16% 20% $4.0 23% network create strong incentives for merchants to 20% accept payment via PayPal $3.0 $2.0 13% 10% $1.0 $1.4b $2.6b $3.5b $4.8b $6.2b $7.9b $0.0 0% 2016E 2017E 2018E 2019E 2020E 2021E

Braintree Revenue % of Total PayPal Revenue % of Total PayPal Revenue (excluding PayPal Button)

13 Braintree: Mobile Accessibility

Braintree’s emphasis on mobile eCommerce integration presents another attractive source of additional payment volume growth

Mobile Commerce Users and Penetration Rate Mobile Point of Sale Users (millions) (millions)

1,800.0 25.0% 1,800.0 1,657.2 1,657.2 1,550.8 1,550.8 1,600.0 1,600.0 1,426.8 1,426.8 1,400.0 1,286.6 1,400.0 1,286.6 20.0% 1,200.0 1,133.3 1,200.0 1,133.3 975.6 975.6 1,000.0 1,000.0 824.3 824.3 15.0% 800.0 800.0 600.0 600.0 10.0% 400.0 400.0 200.0 200.0 0.0 0.0 5.0% 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2017A 2018A 2019A 2020E 2021E 2022E 2023E

Mobile accounts for 40% of PayPal’s current payment volume, and is expected to increase to 50% by the end of 2020

14 Venmo Monetization

Venmo Overview • On pace to generate over $100b in payments volume in 2019 • Top grossing app in the US today by dollar volume other than Amazon • Currently an unprofitable business… Why Venmo is Underappreciated • Competitive differentiator for US mobile payments business • 40 mm engaged users • Millennial user base that is significant for retailers and digital economy companies • Monetization growth will occur due to increasing instant transfer revenue, strengthening Venmo card, and Pay with Venmo achieving scale • 25 mm of 40mm users have yet to monetize (solely P2P) • By Q3 2019, Venmo at a ~$400mm revenue run rate, Where Venmo is Going • Strategy to monetize Venmo by C2B • Evidenced by recent products, such as credit card, Honey shopping integration, and developing Venmo’s newsfeed to create consumer and brand engagement through rewards and stickers • PWV likely to scale in 2020 due to the Honey acquisition, increased brand engagement, and increasing use of the PWV button Estimated Revenue Mix $2,500 $2,000 $883 $1,500 $452 $1,000 $873 $74 $193 $523 $500 $10 $247 $549 $186 $289 $413 $0 0 2019E 2020E 2021E 2022E

Pay with Venmo Venmo Card Instant Transfer

Pymnts, Capital IQ, 10-k 15 Final Recommendation

Recommendation: Buy Valuation Method Weight Implied Price

Discounted Cash Flow – Multiples Method 100% $135.4

Comparable Companies (EV/EBIT) 0% $85.71

Intrinsic Value per Share $135.4

Current Price (as of March 5, 2019) $112.01

Upside/(Downside) to Current 20.9%

1 PYPL has a massive TAM and likely will continue to gain share in the fastest growing area of payments

2 High potential for the improved monetization of Venmo

3 Braintree is an underappreciated asset and has extensive potential for growth

16 Appendix Overview of Fees

▸ Interchange Fee: Card issuer gets paid by taking a percentage of each sale – Depends on industry, sale amount, and type of card used; over 300 different interchange fees – Ex: 2.0% of volume + $0.10 per transaction ▸ Assessment Fee: Credit card association usually bundles with interchange fee; cover the operating costs of managing the payment network

▸ Markup Fee: Set of fees charged by everyone else who moves the transaction through the network – Merchant acquirer: sets up the merchant with a payment processor (acts as a payment gateway) – Payments processor: responsible for moving the transactions from point A to point B, handles the authorization and settlement, and transfers the money from the customer’s bank to a merchant bank – Ex: .25% of sale + $0.10 per transaction (varies by industry)

18 PayPal: Payment Solutions Overview

• Serves small businesses in 12 countries including Scandinavian countries, parts of • Core business comprised of the branded Europe, the UK, Mexico, and Brazil “PayPal button”, resides on ~23 million merchant websites and mobile apps • Offers card acceptance services, point of sales management and analysis, small • 300+ million customers on platform business financing, and access to third party applications

• An electronic funds transfer and • Merchant acquirer and payment gateway remittance provider that allows consumers to send money, pay bills, and reload mobile • Accepts and processes cards, PayPal, and phones from the United States and Canada wallets such as Venmo, Apple Pay, and to 131 countries Google Pay in a single, modern integration • Can send up to $10,000 at once

• Account holders can transfer funds to others via a mobile phone app; both sender and receiver have to live in the U.S.

19 PayPal: Fees Overview

Monthly Sales Flat fee per Volume transaction Card Invoice 2.9% + Payment POS app $0 to $3,000 Payments $0.30/transaction fee

2.5% + 2.5% per $3,000 to $10,000 1.75% £39/month $0.30/transaction transaction 2.2% + $10,000 $0.30/transaction

Fees Vary Fees Vary Fees Vary Depending Depending Depending Gateway Only Full-Stack on Transfer on Reload on Bill Location Location Location 2.9% + $0.10 + $49/month Fixed + Fixed + Fixed + $0.30/transaction exchange rate exchange rate exchange rate

ATM Sending Electronic Withdrawal Money Withdrawal (out of Using (instant) network) Credit Card

1% $2.50 3%

20 Valuation DCF Output – Base

FCF Build - Base Case FYE December 31, FYE December 31, ($ in millions) 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E 2024E Total Revenue $10,842.0 $13,094.0 $15,451.0 $17,772.0 $19,726.9 $21,699.6 $23,869.6 $26,208.8 $28,751.0 $31,482.4 $34,410.3 Revenue Growth -- 20.8% 18.0% 15.0% 11.0% 10.0% 10.0% 9.8% 9.7% 9.5% 9.3%

Expenses COGS 5,701.0 6,695.0 8,262.0 9,785.0 10,889.3 11,956.5 13,152.1 14,441.0 15,841.8 17,346.8 18,960.1 Gross Profit $5,141.0 $6,399.0 $7,189.0 $7,987.0 $8,837.7 $9,743.1 $10,717.4 $11,767.7 $12,909.2 $14,135.6 $15,450.2 Gross Margin 47.4% 48.9% 46.5% 44.9% 44.8% 44.9% 44.9% 44.9% 44.9% 44.9% 44.9% SG&A 1,997.0 2,370.0 2,855.0 3,112.0 3,550.8 3,905.9 4,296.5 4,717.6 5,175.2 5,666.8 6,193.8 R&D 834.0 1,740.0 1,831.0 2,085.0 2,367.2 2,647.4 2,936.0 3,249.9 3,593.9 3,998.3 4,370.1 Operating Expenses 2,837.0 4,110.0 4,686.0 5,197.0 5,918.1 6,553.3 7,232.5 7,967.5 8,769.1 9,665.1 10,563.9 Operating Income (EBIT) $2,304.0 $2,289.0 $2,503.0 $2,790.0 $2,919.6 $3,189.8 $3,485.0 $3,800.3 $4,140.2 $4,470.5 $4,886.3 EBIT Margin 21.3% 17.5% 16.2% 15.7% 14.8% 14.7% 14.6% 14.5% 14.4% 14.2% 14.2% Income Tax Expense (24%) 230.0 405.0 319.0 539.0 700.7 765.6 836.4 912.1 993.6 1,072.9 1,172.7 EBIAT $2,074.0 $1,884.0 $2,184.0 $2,251.0 $2,218.9 $2,424.3 $2,648.6 $2,888.2 $3,146.5 $3,397.6 $3,713.6

Cash Flow Plus: D&A 718.0 805.0 776.0 912.0 1,085.0 1,193.5 1,312.8 1,441.5 1,581.3 1,731.5 1,892.6 Discretionary Cash Flow 2,792.0 2,689.0 2,960.0 3,163.0 3,303.9 3,617.8 3,961.4 4,329.7 4,727.8 5,129.1 5,606.1 Less: Increase in NWC 0.0 (39.0) 6,450.0 (2,921.0) 694.2 104.7 179.5 193.5 210.3 225.9 242.2 Less: CapEx (669.0) (667.0) (823.0) (704.0) (1,183.6) (1,345.4) (1,527.7) (1,651.2) (1,811.3) (1,983.4) (2,167.8) Free Cash Flow $2,123.0 $1,983.0 $8,587.0 ($462.0) $2,814.5 $2,377.1 $2,613.2 $2,872.0 $3,126.8 $3,371.6 $3,680.5 Free Cash Flow Growth -- (6.6%) 333.0% (105.4%) (709.2%) (15.5%) 9.9% 9.9% 8.9% 7.8% 9.2%

Unlevered Free Cash Flow WACC 10.49% Discount Period 0.5 1.5 2.5 3.5 4.5 5.5 6.5 Discount Factor 0.95 0.86 0.78 0.71 0.64 0.58 0.52 Present Value of Free Cash Flow $2,677.6 $2,046.8 $2,036.7 $2,025.9 $1,996.3 $1,948.4 $1,925.0

Enterprise Value DCF Sensitivity Analysis Cumulative Present Value of FCF $14,656.7 WACC Terminal Value 135.40 8.5% 9.5% 10.5% 11.5% 12.5% Terminal Year EBITDA $6,778.8 38.0x $144.59 $136.70 $129.32 $122.42 $115.97 Exit Multiple 40.0x 39.0x $147.99 $139.90 $132.34 $125.27 $118.66 Terminal Value $271,152.8 EV/EBITDA 40.0x $151.40 $143.11 $135.37 $128.12 $121.35 Discount Factor 52.30% 41.0x $154.80 $146.32 $138.39 $130.97 $124.03 Present Value of Terminal Value $141,820.1 42.0x $158.20 $149.52 $141.41 $133.82 $126.72 % of Enterprise Value 90.6%

Enterprise Value $156,476.7

DCF Implied Equity Value and Share Price Enterprise Value $156,476.7 Less: Total Debt $5,000.0 Plus: Cash & Cash Equivalents $7,349.0

Implied Equity Value $158,825.7

Implied Share Price $135.40

Shares Outstanding 1,173

22 DCF Output - Bull

FCF Build - Upside Case FYE December 31, FYE December 31, ($ in millions) 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E 2024E Total Revenue $10,842.0 $13,094.0 $15,451.0 $17,772.0 $20,260.1 $23,076.2 $26,260.8 $29,858.5 $33,889.4 $38,362.8 $43,349.9 Revenue Growth -- 20.8% 18.0% 15.0% 14.0% 13.9% 13.8% 13.7% 13.5% 13.2% 13.0%

Expenses COGS 5,701.0 6,695.0 8,262.0 9,785.0 11,143.0 12,691.9 14,443.4 16,422.2 18,639.2 21,099.5 23,842.5 Gross Profit $5,141.0 $6,399.0 $7,189.0 $7,987.0 $9,117.0 $10,384.3 $11,817.3 $13,436.3 $15,250.2 $17,263.2 $19,507.5 Gross Margin 47.4% 48.9% 46.5% 44.9% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% SG&A 1,997.0 2,370.0 2,855.0 3,112.0 3,444.2 3,923.0 4,464.3 5,075.9 5,761.2 6,521.7 7,369.5 R&D 834.0 1,740.0 1,831.0 2,085.0 2,228.6 2,538.4 2,888.7 3,284.4 3,727.8 4,219.9 4,768.5 Operating Expenses 2,837.0 4,110.0 4,686.0 5,197.0 5,672.8 6,461.3 7,353.0 8,360.4 9,489.0 10,741.6 12,138.0 Operating Income (EBIT) $2,304.0 $2,289.0 $2,503.0 $2,790.0 $3,444.2 $3,923.0 $4,464.3 $5,075.9 $5,761.2 $6,521.7 $7,369.5 EBIT Margin 21.3% 17.5% 16.2% 15.7% 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% Income Tax Expense (24%) 230.0 405.0 319.0 539.0 723.3 823.8 937.5 1,065.9 1,209.9 1,369.6 1,547.6 EBIAT $2,074.0 $1,884.0 $2,184.0 $2,251.0 $2,720.9 $3,099.1 $3,526.8 $4,010.0 $4,551.3 $5,152.1 $5,821.9

Cash Flow Plus: D&A 718.0 805.0 776.0 912.0 1,215.6 1,384.6 1,575.6 1,791.5 2,033.4 2,301.8 2,601.0 Discretionary Cash Flow 2,792.0 2,689.0 2,960.0 3,163.0 3,936.5 4,483.7 5,102.5 5,801.5 6,584.7 7,453.9 8,422.9 Less: Increase in NWC 0.0 (39.0) 6,450.0 (2,921.0) (1,322.2) (45.3) (51.3) (57.9) (64.9) (72.0) (80.3) Less: CapEx (669.0) (667.0) (823.0) (704.0) (1,114.3) (1,269.2) (1,444.3) (1,642.2) (1,863.9) (2,110.0) (2,384.2) Free Cash Flow $2,123.0 $1,983.0 $8,587.0 ($462.0) $1,500.0 $3,169.2 $3,606.9 $4,101.4 $4,655.9 $5,271.9 $5,958.4 Free Cash Flow Growth -- (6.6%) 333.0% (105.4%) (424.7%) 111.3% 13.8% 13.7% 13.5% 13.2% 13.0%

Unlevered Free Cash Flow WACC 10.49% Discount Period 0.5 1.5 2.5 3.5 4.5 5.5 6.5 Discount Factor 0.95 0.86 0.78 0.71 0.64 0.58 0.52 Present Value of Free Cash Flow $1,427.1 $2,728.9 $2,811.0 $2,893.1 $2,972.6 $3,046.5 $3,116.4

Enterprise Value DCF Sensitivity Analysis Cumulative Present Value of FCF $18,995.6 WACC Terminal Value 146.43 8.5% 9.5% 10.5% 11.5% 12.5% Terminal Year EBITDA $9,970.5 38.0x $209.55 $197.94 $187.08 $176.93 $167.43 Exit Multiple 28.8x 39.0x $214.56 $202.65 $191.53 $181.12 $171.39 Terminal Value $287,589.2 EV/EBITDA 40.0x $219.56 $207.37 $195.97 $185.32 $175.34 Discount Factor 52.30% 41.0x $224.57 $212.08 $200.42 $189.51 $179.30 Present Value of Terminal Value $150,416.7 42.0x $229.57 $216.80 $204.86 $193.70 $183.26 % of Enterprise Value 88.8%

Enterprise Value $169,412.3

Implied Equity Value and Share Price Enterprise Value $169,412.3 Less: Total Debt $5,000.0 Plus: Cash & Cash Equivalents $7,349.0

Implied Equity Value $171,761.3

Implied Share Price $146.43

Shares Outstanding 1,173

23 DCF Output - Bear

FCF Build - Downside Case FYE December 31, FYE December 31, ($ in millions) 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E 2024E Total Revenue $10,842.0 $13,094.0 $15,451.0 $17,772.0 $19,371.5 $21,076.2 $22,909.8 $24,880.0 $26,970.0 $29,181.5 $31,516.0 Revenue Growth -- 20.8% 18.0% 15.0% 9.0% 8.8% 8.7% 8.6% 8.4% 8.2% 8.0%

Expenses COGS 5,701.0 6,695.0 8,262.0 9,785.0 9,685.7 10,538.1 11,454.9 12,440.0 13,485.0 14,590.7 15,758.0 Gross Profit $5,141.0 $6,399.0 $7,189.0 $7,987.0 $9,685.7 $10,538.1 $11,454.9 $12,440.0 $13,485.0 $14,590.7 $15,758.0 Gross Margin 47.4% 48.9% 46.5% 44.9% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% SG&A 1,997.0 2,370.0 2,855.0 3,112.0 3,293.2 3,582.9 3,894.7 4,229.6 4,584.9 4,960.9 5,357.7 R&D 834.0 1,740.0 1,831.0 2,085.0 2,130.9 2,318.4 2,520.1 2,736.8 2,966.7 3,210.0 3,466.8 Operating Expenses 2,837.0 4,110.0 4,686.0 5,197.0 5,424.0 5,901.3 6,414.7 6,966.4 7,551.6 8,170.8 8,824.5 Operating Income (EBIT) $2,304.0 $2,289.0 $2,503.0 $2,790.0 $4,261.7 $4,636.8 $5,040.2 $5,473.6 $5,933.4 $6,419.9 $6,933.5 EBIT Margin 21.3% 17.5% 16.2% 15.7% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% Income Tax Expense (24%) 230.0 405.0 319.0 539.0 1,022.8 1,112.8 1,209.6 1,313.7 1,424.0 1,540.8 1,664.0 EBIAT $2,074.0 $1,884.0 $2,184.0 $2,251.0 $3,238.9 $3,523.9 $3,830.5 $4,159.9 $4,509.4 $4,879.1 $5,269.5

Cash Flow Plus: D&A 718.0 805.0 776.0 912.0 1,162.3 1,264.6 1,374.6 1,492.8 1,618.2 1,750.9 1,891.0 Discretionary Cash Flow 2,792.0 2,689.0 2,960.0 3,163.0 4,401.2 4,788.5 5,205.1 5,652.7 6,127.6 6,630.0 7,160.4 Less: Increase in NWC 0.0 (39.0) 6,450.0 (2,921.0) (4,056.7) (269.3) (289.7) (311.3) (330.2) (349.4) (368.9) Less: CapEx (669.0) (667.0) (823.0) (704.0) (774.9) (843.0) (916.4) (995.2) (1,078.8) (1,167.3) (1,260.6) Free Cash Flow $2,123.0 $1,983.0 $8,587.0 ($462.0) ($430.4) $3,676.1 $3,999.0 $4,346.2 $4,718.6 $5,113.4 $5,530.9 Free Cash Flow Growth -- (6.6%) 333.0% (105.4%) (6.9%) (954.2%) 8.8% 8.7% 8.6% 8.4% 8.2%

Unlevered Free Cash Flow WACC 10.49% Discount Period 0.5 1.5 2.5 3.5 4.5 5.5 6.5 Discount Factor 0.95 0.86 0.78 0.71 0.64 0.58 0.52 Present Value of Free Cash Flow ($409.4) $3,165.4 $3,116.7 $3,065.8 $3,012.6 $2,954.8 $2,892.8

Enterprise Value DCF Sensitivity Analysis Cumulative Present Value of FCF $17,798.8 WACC Terminal Value 124.40 8.6% 9.6% 10.6% 11.6% 12.6% Terminal Year EBITDA $8,824.5 18.3x $92.30 $87.06 $82.16 $77.58 $73.28 Exit Multiple 28.8x 19.3x $96.69 $91.20 $86.06 $81.25 $76.75 Terminal Value $254,534.0 EV/EBITDA 20.3x $101.08 $95.33 $89.96 $84.93 $80.22 Discount Factor 52.30% 21.3x $105.47 $99.47 $93.86 $88.61 $83.69 Present Value of Terminal Value $133,128.0 22.3x $109.86 $103.60 $97.76 $92.28 $87.16 % of Enterprise Value 88.2%

Enterprise Value $150,926.7

Implied Equity Value and Share Price Enterprise Value $150,926.7 Less: Total Debt $5,000.0 Plus: Cash & Cash Equivalents --

Implied Equity Value $145,926.7

Implied Share Price $124.40

Shares Outstanding 1,173

24 Comparables Analysis Valuation Statistics Market Enterprise EV / Revenue EV / EBITDA Price / Earnings Company Ticker Capitalization Value 2019A LTM 2019A LTM 2019A LTM Mastercard Incorporated MA $303,905 $305,518 18.3x 18.1x 30.3x 30.0x 44.4x 38.1x Visa Inc. V 417,397 421,989 16.9x 17.9x 24.6x 26.3x 35.3x 35.5x Global Payments Inc. GPN 58,104 66,546 8.0x 13.5x 20.3x 34.6x 73.6x 89.8x Fiserv, Inc. FISV 76,181 97,930 8.9x 9.6x 25.6x 27.7x 55.7x 65.6x

PayPal Holdings, Inc. PYPL $135,242 $129,953 6.7x 7.3x 34.9x 38.2x 50.8x 55.7x

Low $58,104 $66,546 8.0x 9.6x 20.3x 26.3x 35.3x 35.5x Mean 213,897 222,996 13.0x 14.8x 25.2x 29.6x 52.3x 57.2x Median 190,043 201,724 12.9x 15.7x 25.1x 28.8x 50.1x 51.8x High 417,397 421,989 18.3x 18.1x 30.3x 34.6x 73.6x 89.8x

Operating Statistics Revenue Revenue Growth EBITDA EBITDA Margin Company Ticker 2019A LTM '18-'19A LTM 2019A LTM 2019A LTM Mastercard Incorporated MA $16,883 $16,883 19.6% 12.9% $10,189 $10,189 60.4% 60.4% Visa Inc. V $22,977 23,525 21.7% 10.7% 15,737 16,052 68.5% 68.2% Global Payments Inc. GPN $4,912 4,912 5.3% 45.9% 1,925 1,925 39.2% 39.2% Fiserv, Inc. FISV $10,187 10,187 3.5% 74.9% 3,535 3,535 34.7% 34.7%

PayPal Holdings, Inc. PYPL $17,772 $17,772 20.8% 15.0% $3,404 $3,404 19.2% 19.2%

Low $4,912 $4,912 3.5% 10.7% $1,925 $1,925 34.7% 34.7% Mean 13,740 13,877 12.5% 36.1% 7,847 7,925 50.7% 50.6% Median 13,535 13,535 12.4% 29.4% 6,862 6,862 49.8% 49.8% High 22,977 23,525 21.7% 74.9% $15,737 $16,052 68.5% 68.2%

25