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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: bruwin who wrote (78559)	11/19/2025 11:15:29 AM
From: E_K_S	1 Recommendation Recommended By Lance Bredvold Respond to of 78753

Re: PYPL Cost of Capital vs Just Finance from FCF (Note: FCF is huge but YoY is down 21% 2024/2025) PayPal's cost of debt in 2025 is approximately 4.0% to 4.25%, based on its latest trailing twelve months (TTM) interest expense divided by total debt, which ranges around $10 billion to $11.3 billion. The effective tax rate is about 20.5%, lowering the after-tax cost of debt proportionally. PayPal’s weighted average cost of capital (WACC), including the cost of equity (around 9.3% to 10.9%), is estimated between 8.5% and 10.9%, reflecting the blended cost of debt and equity financing. The company’s return on invested capital (ROIC) is around 22%, indicating it earns substantially more on its investments than it pays in capital costs. ----------------------------------------------------------------------- To me if i was a shareholder the prudent thing to do is finance all CapX using FCF and what's left over pay down debt . . . -------------------------------------------------------------------------- PayPal’s Free Cash Flow (FCF) was approximately $6.77 billion in fiscal 2024 and is projected to be slightly lower at around $5.57 billion to $5.97 billion (TTM) in 2025. The FCF dropped by roughly 21% from 2024 to 2025, attributed partly to operational cash flow timing and capital expenditures variations. PayPal’s adjusted guidance continues to forecast FCF exceeding $6 billion for full-year 2025, reflecting strong cash generation capacity.? Given PayPal’s consistent multi-billion dollar FCF, it is feasible for the company to finance most, if not all, of its capital expenditures (CapEx) internally from free cash flow. This approach avoids incurring additional interest expense and financial risk associated with debt. Furthermore, PayPal maintains significant cash and cash equivalents on its balance sheet, which could be used to strategically pay down existing debt, thereby reducing interest costs and improving leverage ratios. Summary Comparison: Financing CapEx and Debt Paydown from FCF and Reserves PayPal is in a strong position to finance CapEx from its free cash flow, which aligns with prudent financial management by maintaining flexibility and reducing leverage risk. Using excess cash or reserves to pay down debt would further decrease interest expenses and enhance overall financial health. This strategy often improves return metrics such as Return on Free Cash Flow and Return on Equity by reducing fixed financing costs. Hence, financing CapEx internally while applying surplus cash to debt repayment generally is a financially sound approach for PayPal in 2025, though the company may choose debt to leverage growth opportunistically depending on market and strategic factors ---------------------------------------------------------- There are lot's of levers PYPL's management can pull. So w/ that potential KKR debt risk exposure, it might be better to finance future CapX from FCF and slowly pay down debt. Eventually that could buy back shares too. However it's all about risk prevention . . stay tuned