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Short Paypal? 20-Year-Old Student Takes On Jim Cramer

Short Paypal? 20-Year-Old Student Takes On Jim Cramer

Love him or hate him, CNBC's Jim Cramer does his homework and comes prepared to present the facts to support his point of view.

On Tuesday, Cramer took on 20-year old Dylan Adelman, a student at The Wharton School who took home the coveted title as the annual investing contest winner in conjunction with the Ira Sohn conference. Adelman's winning idea consists of a pair trade: go long shares of eBay Inc (NASDAQ: EBAY) and short Paypal Holdings Inc (NASDAQ: PYPL).

The Debate: Round One

Cramer said shorting PayPal is a mistake. He noted PayPal's total payment volume in the first quarter reached $99 billion, which represents a 19 percent growth on a constant-currency basis.

Perhaps more important than the headline number is the fact that many investors continue to make the mistake in writing PayPal off. First it was a big bank that was supposed to be the "Paypal killer," then one of the major credit car providers was supposed to end PayPal's dominance. Most recently, Apple Inc. (NASDAQ: AAPL)'s Apple Pay platform was supposed to do what no one else was able to do and dethrone PayPal.

But PayPal is arguably as strong as it has ever been with a large cash position and ongoing $5 billion share buyback program.

Finally, Cramer argued PayPal is the "millennial credit card" and all these factors combined makes it a risky proposition to bet against PayPal's future.

The 'Kid' Responds

Adelman was just as prepared to take on Cramer. His trump card? An overlooked footnote that was part of PayPal and eBay's split.

Adelman noted there is an agreement between the two companies called a merchant of record contract. It states that around $8.5 billion in money that is currently making its way into PayPal's coffers will find its way into eBay's hands in 2020 when eBay controls the payments technology it uses PayPal for.

But at the end of the day, as Cramer pointed out, Adelman's thesis is based on a "hope" that eBay will develop its own technology in house to keep the billions of dollars that would otherwise go out the door.

See Also:

Here's What Analysts Thought Of PayPal's Q1

PayPal's Digital Payment Momentum Outweighs Risks

Image: Janitors via / CC BY-SA 2.0


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