In the wake of PayPal Holdings, Inc.'s (NASDAQ:PYPL) latest US$3.4b market cap drop, institutional owners may be forced to take severe actions
PayPal Holdings Inc
- Institutions' substantial holdings in PayPal Holdings implies that they have significant influence over the company's share price
- 40% of the business is held by the top 25 shareholders
- Ownership research along with analyst forecasts data help provide a good understanding of opportunities in a stock
To get a sense of who is truly in control of PayPal Holdings, Inc. (NASDAQ:PYPL), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 72% to be precise, is institutions. In other words, the group stands to gain the most (or lose the most) from their investment into the company.
And institutional investors endured the highest losses after the company's share price fell by 5.7% last week. The recent loss, which adds to a one-year loss of 40% for stockholders, may not sit well with this group of investors. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. Hence, if weakness in PayPal Holdings' share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.
In the chart below, we zoom in on the different ownership groups of PayPal Holdings.
What Does The Institutional Ownership Tell Us About PayPal Holdings?
Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.
As you can see, institutional investors have a fair amount of stake in PayPal Holdings. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at PayPal Holdings' earnings history below. Of course, the future is what really matters.
Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Hedge funds don't have many shares in PayPal Holdings. The Vanguard Group, Inc. is currently the largest shareholder, with 8.4% of shares outstanding. For context, the second largest shareholder holds about 6.8% of the shares outstanding, followed by an ownership of 4.2% by the third-largest shareholder.
Our studies suggest that the top 25 shareholders collectively control less than half of the company's shares, meaning that the company's shares are widely disseminated and there is no dominant shareholder.
While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.
Insider Ownership Of PayPal Holdings
The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.
I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.
Our data suggests that insiders own under 1% of PayPal Holdings, Inc. in their own names. Being so large, we would not expect insiders to own a large proportion of the stock. Collectively, they own US$84m of stock. In this sort of situation, it can be more interesting to see if those insiders have been buying or selling.
General Public Ownership
The general public-- including retail investors -- own 28% stake in the company, and hence can't easily be ignored. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.
While it is well worth considering the different groups that own a company, there are other factors that are even more important.
I like to dive deeper into how a company has performed in the past. You can find historic revenue and earnings in this detailed graph.
Ultimately the future is most important. You can access this free report on analyst forecasts for the company.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.