Season 3, Post 6: The future, according to Dan

Over 70% of America’s and almost 50% of Europe’s largest companies have now issued results releases for the three-month period ending 31 December 2020 providing Chief Executives with a stage to comment on how they see the world. Your author is a hardened sceptic who estimates he has listened to at least 1000 such results/outlook calls since he has been at Heptagon Capital. Few, however, have stood out as compellingly as those hosted by PayPal and Chegg in recent days. Further, PayPal held (virtually) only its third Investor Day since separation from eBay yesterday. The passion and vision of Dan Schulman and Dan Rosensweig, Chief Executives of PayPal and Chegg respectively, is worthy of additional comment below.

Begin with PayPal. Two messages from Dan’s commentary at the company’s earnings call on 3 February, which were fleshed out in more detail yesterday, stand out. The first is that the current financial system is “antiquated” and one from which many people are “excluded.” It is hard to disagree with such an assertion given that some 20% of American households are either unbanked (i.e. they do not have accounts) or underbanked (they lack access to a full suite of services). Against this background, PayPal has a very clear mission, “to democratise financial services” so that “everyone can have access to the digital economy”, per Dan.

This leads to the second major take-away from PayPal. As Dan noted, the pandemic has “leapfrogged [us] into a new digital era.” We made this observation in our Rubicon thesis note last year and most observers are now of the view that lockdowns accelerated digital adoption (of e-commerce, payments etc.) by at least three to five years. Indeed, per Dan, “the lines between physical and digital are blurring; physical will become digital.” What this means, in our view, is that businesses need to design infrastructure and services to accommodate such a world view. PayPal calls it a “connected ecosystem.” Expect to see this business – and other aspirants – seeking to become ‘super-apps’, where payments, shopping and financial services can all be accessed via a single platform.

The metaphorical crossing of the digital Rubicon has been no less compelling in the world of education. It was therefore fascinating to hear another Dan, Chegg’s Chief Executive, speak to the investment community on Monday. He contended that the transition to online education is “an irreversible trend,” simply because students can now learn whatever they want, whenever they want, wherever they want.” 90% of students globally who have been using Chegg’s services for at least two months say that it ‘helps them better understand their work’, per a recent study conducted by Chegg. The conclusion: as Dan puts it, “higher education must acknowledge that the internet is here.” We concur. The opportunity is significant.

12 February 2021

The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Heptagon Capital is an investor in Chegg and PayPal. The author of this piece has no personal direct investment in the business. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.
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Alex Gunz, Fund Manager