How is a company valued? According to profit and loss, balance sheet, turnover, cash flow, right? If you look at these and use different methods with some mathematical calculations, you will reach a certain cost and if the company has announced a good balance sheet, the stock value will increase. If the company announces a bad balance sheet, its stock value decreases. Although these are like this in theory, since we human beings are emotional beings, they may not work like this in real life, and in real life, companies that announce extremely bad balance sheets can increase the price of their shares because their CEOs speak well. On the other hand, companies that announce very good balance sheets may go backwards because the CEO is a little low on energy that day. Look, let me give you an example.
Unfortunately, Enphase went very badly last year and its balance sheet arrived yesterday. When the balance sheet came out, the stock price suddenly rose from 100 dollars to 118 dollars, a tremendous increase of 18%. They certainly brought a great balance sheet. They brought in 54 cents in profit per share. It fell 1 cent short of the target. Come on, it's not a big deal. They brought in a turnover of 302 million dollars. $25 million fell short of the target. So it's almost around 8%. What's good about this? The turnover decreased by 58.2% compared to the previous year. That is, it has decreased by almost half. While turnover in the United States decreased by 35%, the decrease in turnover in Europe reached 70%.
An beyond terrible balance sheet. The stock must be slaughtered. No, it doesn't work like that, it goes up by 18%. Because the CEO says our future is bright. We think we found the bottom. We think demand is increasing in Europe. He gives an explanation that if interest rates fall, things will go well. It gives hope and since the stock was super penalized up to that point, relief comes from here and people buy the future. I don't find it wrong, you just need to understand human behavior well. American stock market investors especially like to look at the future, not the past, and even if the past figures are bad, if an expectation is announced that this is the bottom and the future is good, especially if the CEO who explains this expectation has a strong stance, he convinces himself and so on, then the shares can go up.
On the other hand, Paypal's balance sheet has arrived and PayPal has a very good balance sheet. Because the CEO's energy was low, what he said in the speeches was actually very good, but I accept that the energy was low. Since its energy is low, the value of the stock has fallen by 8% and maybe it will drop a little more when the stock market opens today. Because the energy is low. Now let's take a look at PayPal's balance sheet in this context.
What does Paypal's balance sheet say? Let me tell you what it tells us about the future and why I don't care much about nonsense details like the CEO's low energy. Actually, PayPal is a sleeping giant in my eyes. I said last year that PayPal is very poorly managed, but it has high potential. They will probably experience a CEO change. After the CEO is replaced, the company will take a certain path. As a matter of fact, what I said turned out to be true. The CEO was changed and a young CEO came.
A young friend from Intuitive named Alex Chriss was extremely successful in the previous company, especially with great experience in the digitalization of small and medium-sized businesses, and I said I would give this friend some opportunity. He has only been in the administration for 4 months, and I did not expect anything from him considering the balance sheet in the first month of his first administration. We were expecting some planning from yesterday. You went to manage a new company. First you will learn about it, you will understand it, you will see its problems. Then you will put forward the solution plan.
Alex Chriss explained this solution plan very well. Actually, the tempo was slow, but I think the most important thing is that the company's balance sheet was great and we can see the attack the company made, especially in the last quarter, as an example of how Alex Chriss started to pick things up even in this short time. Let's look at the numbers now. As you know, PayPal is a payment platform. That's why the growth of payments through it is important. 409 billion payments were made this quarter, growing by 13%. This means 1.2 - 1.3 trillion dollars annually. 25% of the world's e-commerce goes through PayPal and they are still generating 15% growth there.
If we look at the revenue side, it increased its turnover by 9%. I thought growth between 8 and 9% would be very good. There is zero growth in turnover and profit margin per transaction, which is positive. Because it was shrinking before. In fact, there is a 39% increase in operating profit. The main operating profit margin increased from 16.80% to 21.5%. That is, there is an increase of 468 basis points. There is a 52% increase in net profit, from 921 million to 1 billion 402 million. There is a 52% increase in net profit. Profitability per share increased from 81 cents to 1.29 dollars, again above the targets. There is an increase in earnings per share of 61% and there is also an increase in free cash flow generated from operations from 1 billion 591 to 2,614. It means an increase of 64%.
Is this balance sheet bad? They have already surpassed all the targets set by Wall Street. They passed by quite a bit. But the stock fell nearly 18%. Because the CEO didn't sound exciting enough. If we go into the numbers in a little more detail, we will understand better how magnificent something we are actually faced with. If we look at the historical development of the company on mainstreetdata.com, its turnover this year is 8 billion dollars, its turnover in the last quarter is 8.03 billion dollars, and its turnover in the same quarter last year is 7.38 billion dollars. A turnover of 600 million dollars was added. Gross profit this quarter was $4.07 billion, compared to $3.67 billion last quarter. There is an increase in gross profit.
When we look at the main activity decision, it is 1.73 billion dollars, compared to 1.24 billion dollars in the same quarter last year. These are extraordinary figures. These are not just such numbers. Because we are not dealing with a small startup, percentages would be meaningless. A large company has continued to grow very seriously. Net profit here is particularly striking when you look at it, net profit is 1.4 billion, net profit in the same quarter last year was 921 million and we see that it is going upwards step by step. Now you will say that there is crazy snow in 2020 - 2021. Why can't the company catch them?
That was the period when Covid was experienced, and Covid was very beneficial to companies like PayPal. First of all, we did a lot of online shopping from home. Secondly, many people started small businesses on the internet and needed payment platforms. This is an extra period, but if we return to the normal curve, there is a significant increase compared to 2019. For example, there was a turnover of 507 million dollars in the last quarter of 2019, and now it is 1.4 billion dollars, meaning that there is a company that has tripled its turnover in 3 years. When we look at the gross profit in more detail, the gross profit is 4.07 billion dollars. It was previously $3.67 billion. The increase in main operating expenses was 2.34 billion. In this period, it also reduced its main operating expenses by 2.4%. This is a great thing, we call it operating leverage.
In other words, you increase sales and gross profit, but you do not increase your main operating expenses, namely sales, marketing, research, accounting and general expenses. This again shows that the company's leverage in this sense has strengthened. We are already looking at cash flows. It is a magnificent picture. We do not need to go into detail again. When we look at cash flows, there is a serious strengthening. They generated $2.47 billion in free cash flow during this period. They created $1.6 billion in 2022. In other words, there is an almost two-fold increase in free cash flow. Therefore, the company's cash and working capital are much higher than last year.
When we look at the balance sheet, the growth rate in assets is much higher than that in liabilities, and even better. The company's total number of shares is also decreasing. In other words, the number of people purchasing shares to become partners in this company is decreasing. Because the company is buying back stock. Currently, the number of shares has decreased to 1.09 billion. However, in the same period last year, the company bought back 1.15 billion shares, that is, roughly 150 million shares, from the market, and it has even more aggressive buyback plans for this year. This shows us the cash strength of the company and the company says that I am now slowly collecting the shares back. Because I don't need much money. Maybe I have more cash on hand than I should. Is this balance sheet bad? How many companies can you find with this balance sheet? You can't find it.
Now, but more importantly, has anything changed in this company in the short life of the new CEO? It has been 4 months since it arrived and it had no impact on the previous quarter. It had a very limited impact this quarter. On current operations. The company has done a very good thing in this regard. Before this guy took over the business, the growth in total payments through the company was 13% compared to the previous year. In the last quarter, this increased to 15%. Turnover grew by 8% in all of 2023. It grew 9% after this guy took over. The growth in turnover adjusted for exchange rate difference remained constant.
Their transaction margins, that is, the profit margin they make from each payment, have shrunk throughout 2023. But after this man took over, the business stopped shrinking compared to last year, and there was even a slight growth. Net operating profit was 6 billion 679 during the year. If you pay attention to 1,872 in the last quarter, this is more than a quarter of this, and the increase here is clear. Non-GAAP operating margin was 22.4% for the year. He says it reached 23.3% after I took over.
So, this man has only been the CEO for 3 months, and this 3-month-old CEO of a giant company, where 25,000 people work, has started to show some benefits immediately, by motivating the main operating profits, probably making some savings, laying off a worker, etc. They recently said that nearly 2500 people will be laid off. The benefit of this has not been transferred here yet, but there is a high probability that these figures will go up as of the coming quarters.
So, let's take a look at what's going on with profitability. Because the CEO says my focus is profitable growth. When we look at it, we see that the company's turnover growth, which was previously 8%, reached an average of 9% in the last quarter. The company's profit margin from transactions was 3 billion 369, now it has reached 3 billion 672. While there was a 3% contraction in the previous quarter compared to last year, the shrinkage stopped in this quarter. Profit according to Non-GAAP standard was 1,872. There is a contraction in non-GAAP EPS of 22.2% in the previous quarter, 21.4% in the quarter before that and 23.3% in this quarter. The main reason for this is that they are changing accounting standards here and they have actually done a good thing.
One way to reward employees in these types of companies is to give stock options beyond salaries. In other words, when the employee achieves certain goals, he or she gains the right to buy shares at a cheap price. While this was not shown in non-GAAP profitability before, they started to show it in this quarter, and this is a positive thing. Because this way, we, as investors, see this more clearly. So it's a great thing for transparency. Therefore, there seems to be a regression here. But actually there is no regression here. Only the accounting standard has changed. It would be great if they showed where non-GAAP is going without its influence.
Another issue is that there is a decrease in the number of active users of the company, around 2%. But they had already announced this and said that if the people who use our platform are not really using it, we do not want to count them as customers. There is an increase in transparency and monthly active users. It has increased from 218 to 224. There is a 1% growth year on year. There is also an increase in total transactions. When we look at it throughout the year, there is an increase of 12%. Now it has reached 13%.
The number of transactions going through it is around 58.7 transactions for each active account. This means 14% growth year over year, both in this quarter and in total for the year. This is a good thing, as it means that the company has found a way to do more business for its customers. The total payment volume passing through it was 1.528 trillion dollars in total this year. This means a growth of 13% compared to last year. In the last quarter, it was 409 billion, which means a 15% growth compared to the same period last year. When we look at it adjusted for exchange rate difference, there is an increase of 12% throughout the year and 13% in the last quarter. Total turnover growth from year to year was 8% throughout the year, 9% in the last quarter, when adjusted for exchange rate difference, as you know, the value of the US dollar decreased towards the end of the year and remained at 9%.
We have a new CEO here and he says that he started to make a difference in both growth and determination, and this guy did all this in just 3 months. Do you think this balance sheet and this CEO should be punished? Absolutely no, he should not be punished. So why did the stock fall? The stock fell for two reasons. First of all, as I said before, the CEO's excitement was a little low. Secondly, they kept their future growth expectations somewhat limited. They said that we will achieve mid-single digit growth in the first quarter at a stable per share rate. The growth in our total turnover will be around 6.5% and 7%. However, as you know, they grew by 9% in the last quarter. Interestingly, it reduces growth expectations.
The company's growth expectations throughout the year were again lower than Wall Street expected. Now investors sometimes act so childish that they do not understand what is trying to be done here. A new CEO has arrived. 2024 starts as a clean year for Adam. In 2024, keeping expectations low instead of raising them too much is called sandbagging, by the way, this is actually a concept. A CEO may want to show himself well by going above and beyond those expectations throughout the year. First of all, this is clear from here.
Secondly, this new CEO recently held a meeting and explained his innovation. During this explanation, he used the phrase "we will shock the world". But they actually took it out of context a little bit and said, this guy is going to shock the world, and then the stock skyrocketed. However, on the day they announced their innovation, the stock fell sharply because those expectations were not fully realized. My guess is that Alex Chriss was warned about this too. It is said that do not raise your expectations so high that if you cannot fulfill them, things can get worse.
So they presented a super modest growth target, below all growth averages so far. Since I am a somewhat intelligent man, I can clearly understand what is being done here. However, there is another issue. They said they would buy back at least $5 billion worth of shares. If I'm not mistaken, the value of this company is currently around 60 billion dollars, and it will probably go down a little further after this balance sheet.
5 billion dollars means they will buy back 8% - 9% of the company's shares from the market. So the stock has ready customers. I think this is super positive for us, but more importantly, when you give such a target, that is, when you say you will buy back my stock, do you want the price of your stock to rise quickly or do you want it to stay low and collect it a little bit? You can do the second one, right? Because you say, I want to increase the stock that I can buy with 5 billion dollars. How will this happen? It will happen if we keep the price of your stock a little lower. How do I do that?
The balance sheet turned out very well. The stock may rise. As a matter of fact, it happened. After the balance sheet, the stock suddenly went up 8%. If I lower the expectation a little bit, this will happen and is this wrong or immoral? No, it's not. This is how this game is played. In other words, every management wants to show itself successful. That's why they keep expectations a little low and try to deliver on them. It's pretty normal so far. Secondly, as far as I understand, the company finds its stock cheap. Let's even buy it back if it gets a little cheaper. Thus, let's get rid of the investor pressure a little bit. Moreover, he says, the price of the stock should automatically go up.
Many day traders who were incapable of making these evaluations sold the stock. Probably, since many Wall Street analysts cannot make such fundamental evaluations, there will be downgrades etc. regarding the stock. I see a wonderful situation. I see the company repurchasing almost 10% of its shares from the market. Especially if it drops a little more, I see the company growing and profits increasing. And because they offer super low future predictions, as the company brings better results in the first quarter, second quarter, third quarter, and better results will come. Because the company is making many innovations and we see that even in the first quarter managed by the new CEO, the performance went up.
The value of the company will increase upwards. At least that's my investment thesis. You should always have an investment thesis and see in detail the figures that support or not support your investment thesis and understand the analysis. You should listen to what CEOs say. My conclusion was in this direction. I believe that PayPal will be in a much better place by the end of the year. Whether the stock price will rise or not is still debatable. There may be economic crises, there may be recession. So there are many issues that affect the price of a stock. But the company will be in a much better place, and when the company is in a much better place, eventually, even if the CEO speaks with low energy and the investors behave emotionally, nothing changes. That stock is moving upwards. I hope what I told you was of interest to you. I also do it for educational purposes.
The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.
