PYPL

[admin]

There are some worries that Apple pay will cut into PayPal's turf. Here is a bullish analist, although we're already almost at his price target ($42):

Paypal Holdings Inc

Analyst Daniel Perlin of RBC Capital weighed in on PayPal following positive survey data by the company and comScore on its One Touch payment platform.

The study indicated that One Touch has doubled the conversion rates of more traditional platforms such as Visa. Specifically, the company’s conversion rates came in at 87.5% vs. Visa Checkout at 51.1% and more traditional models at 45.6%. He states, “We believe this key statistic supports our belief that the One Touch strategy/ solution bridges the gap from PYPL’s legacy browser-based model to a mobile first model.”

Diving deeper into the survey, Perlin notes that PayPal moved up 14.5 points from its conversion rate from a similar survey in 2H15. Related, PayPal also released a One-Touch info graphic showing impressive growth. The company displayed One-Touch usage of 21 million consumers vs. 10 million in December 2015 and 203 consumer markets compared to only 23 in December of 2015.

The analyst believes this positive data on One-Touch represents a first-mover advantage. He remarks that as consumers increasingly shift to mobile to make payments, “the ability to automatically be authenticated on your chosen device (mobile, tablet, browser) vs. requiring a login and password… meaningfully reduces the consumer friction points that have historically existed.”

Perlin also notes that this positive survey data reinforces his bullish investment view on the company. The analyst predicts long-term growth for the company as a result of a “compelling long-term market opportunity in digital commerce;” the company’s market leader position in e-commerce payments; increasing consumer shift to mobile; and margin expansion. He also notes that “the “secret sauce” of Venmo and PayPal Credit [allows] the company to increase the profitability of transactions inside the Paypal Network.”

The analyst reiterates an Outperform rating on the company with a $42 price target.

According to TipRanks, Daniel Perlin has an 82% success rate recommending stocks with an average return of 17.1% per recommendation. Out of all the analysts who have rated the company in the past 3 months, 57% are bullish, 4% are bearish, and 38% remain on the sidelines. The average 12-month price target for the stock is $42, marking a 7% upside from where shares last closed.

[admin]

At $40 at present, not sure how much immediate upside there is left (chart self-updates). Next week (27/4) there are Q1 earnings.

[admin]

Analist expect 35 cents for the quarterly earnings and $1.49 for the year. With the general market within a shot of its all-time high and Apple pay looming, it seems the upside is fairly limited. There is also a new wave of fintech companies around the corner, although PayPal is still the dominant player (and will probably remain so for quite some time):

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(Statista) 

[admin]

Some other stuff to consider:

So why downgrade at all? Well, after running through the points in PayPal's favor, Compass Point does allow for a few reservations about PayPal management. In particular, the analyst wasn't enthused by PayPal's decision to spend $890 million to buy international money transfer company XOOM last year. Compass Point characterizes this as a worry over "capital allocation discipline." But in plain English, they mean that they're worried PayPal will continue to overpay for new subsidiaries given "the company's continued focus on acquisitions in a seller's market."

And speaking of acquisitions, Compass Point throws cold water on the theory that PayPal itself might be acquired so soon after splitting off from eBay. Compass Point discounts the possibility that such an acquisition will provide a catalyst to grow PayPal's stock price. Why? Quoting directly, the analyst says "an acquisition of PYPL is unlikely near-term given that such a deal would be quite large (likely $55bn+) and few buyers could pay that price."

Even acknowledging that PayPal is a better cash generator than meets the eye, and that it produced $1.8 billion in free cash flow last year, versus only $1.2 billion in GAAP earnings, the stock's enterprise value-to-free-cash-flow ratio sits north of 24 today. While that's not an unheard-of valuation in the red-hot financial tech sector, it's not exactly a bargain price.

PayPal Stock Downgraded: Here Are 3 Reasons Not to Panic -- The Motley Fool

[admin]

And then there is Amazon:

Amazon Payments has been around since 2013, but PayPal has commanded the lion's share of the market in small business checkout options. While several companies have developed solutions to allow small merchants to accept credit cards online, many customers are still more comfortable using a trusted name, and PayPal is that name more often than not. Amazon Payments works exactly like PayPal, it has similar brand recognition, comparable fees, and many shoppers experience better customer service with Amazon compared to PayPal. Partnering with companies like Shopify or BigCommerce could get Amazon Payments in front of more retailers, driving better adoption. While Payments might not be a huge revenue driver for Amazon, it certainly carries a higher margin than its retail operations.

The one thing that could hold back retailers from using Amazon Payments is that they would have to share data with one of their biggest competitors. Since PayPal isn't affiliated with an online retailer (anymore), retailers don't have to worry about PayPal monitoring their sales and entering the market or ruthlessly dropping prices on similar products to compete. But considering the strong adoption growth over the past year, retailers have decided that it's worth the risk to increase sales conversions, or that Amazon will find that kind of data anyway so it doesn't matter. Amazon has shown a willingness to play nicely with frenemies both large and small, but it's also been known to change its mood drastically. With the new Global Partnership Program, Amazon is poised to capitalize on the momentum behind Amazon Payments.

Amazon Wants a Piece of Every E-Commerce Transaction -- The Motley Fool

[admin]

After Paypal Holdings Inc (NASDAQYPL) announced a partnership agreement with Visa that resolved a longstanding feud over fees paid to the credit card issuer, fast forward seven weeks later, where the online payment giant declared another truce under its belt, smoothing over similar issues with major credit card issuer MasterCard. In reaction, BTIG analyst Mark Palmer anticipates “continued rapid growth” for PYPL and reiterates a Buy rating with a price target of $48, which represents a nearly 29% increase from where the shares last closed. This deal means MasterCard will not charge PYPL with a digital wallet operator fee any more. In return, PYPL has offered a new halt to ACH steering, where customers were once encouraged to directly link PYPL accounts to their banks with the advantage of lower transaction fee charges. Palmer expects the truce “should help should help MasterCard to refine its rewards programs while bolstering its fraud prevention efforts.” Palmer praises the agreement as one of a steam roll of efforts PYPL has maneuvered recently to improve its in-store presence in the midst of tackling rivalry from rising competitors Apple Pay and Android Pay, to name a couple. Palmer commends these efforts for successfully generating “rapid growth” for the company, but notes a weakness in enhancing traction in stores.

BTIG Weighs in on Paypal Holdings Inc (PYPL) Following Truce with MasterCard in Agreement - Smarter Analyst

[admin]

Good quarter with the shares breaking out of resistance with the shares closing at $44.15 at the moment on very heavy volume:

At first sight, this was somewhat surprising as the earnings only came within expectations and there actually was a decline in margins, but the conference call soon showed a better outlook.

Short-time we expect a little pullback, but the company is delivering and increasing it's three year outlook slightly.

We'll give you some highlights from the Q3CC:

• The company has just 1% share of the addressable market ($100 trillion), that is, 10% of e-commerce, which is 10% of retail.
• In the third quarter, we generated revenue of $2.67 billion, up 21% on a currency neutral basis and 18% on a spot basis.
• On a currency neutral-basis, total payment volume increased 28% to $87 billion. U.S. payment volume grew 25% and international volume grew 30%.
• The Merchant Services business grew 34% to $73 billion, primarily driven by core Braintree and Venmo. The company ended the quarter with 192 million active accounts, adding 4.4 million active customer accounts in the quarter, and increasing active accounts by 11% from the third quarter last year.
• Margins fell a bit (150bp) due to currency hedging, seasonality (ramping up for Q4),  investments in growth, Xoom (their money transfer business) and provisions for bad credit ($271M. Credit is 2% of their overall business).
• 19% growth in free cash flow year-over-year. Our free cash flow for the third quarter was $618 million, representing $0.23 of free cash flow for every dollar of revenue.
• During the quarter, we returned approximately $50 million to shareholders by buying back an additional 1.3 million shares.
• Year-to-date, we have returned approximately $945 million to shareholders by repurchasing 26 million shares at an average price of $36.37. We ended the quarter with cash, cash equivalents and investments of $6.4 billion
• Paypal is amassing an ecosystem of partners and are in talks with many more.
• Cross selling abilities through Zoom and Venmo
• Rise in active acounts
• Rise in engagement per account from 24 to 30 times a year (in the past two years)
• Mobile payment volume rose 56% to nearly $26B
• There are significant opportunities with merchants. At present, they have 15M merchants signed up for the PayPal platform, but with the shift towards mobile they can power the merchant apps, as well as their mobile web and instore payments

While expectations where only met in the quarter, what explains the 10% share rise best is that the quarter allayed some fears that the deals with Visa and Mastercard would eat into their margins.

Why is that? Well, it's that these deals would shift PayPal from debit transactions (through the ACH network, its most profitable transactions) and steer them to credit card-based transactions with lower margins. But as the company raised it's three year revenue growth outlook from 15% to 16%-17%, it also said that its margins would be stable to growing.

It's not a total done deal on that. Transaction margin declined from 62.3% in Q3 2015 to 58.7% in the past quarter. They blame this on "the mix shift in our business toward Braintree and increased provisions in our credit business, partially offset by Xoom.

On the other hand, excluding the acquisition of Xoom, other operating expenses increased only 9% or approximately half the rate of revenue growth. And even if the deals with Visa and Mastercard eat somewhat into margins, that could very well be more than offset by increasing the volume of business.

Other worries are also somewhat allayed, While there is undoubtedly a financial revolution going on, with many new fintech start-ups, for now PayPal seems to be holding its own.

[admin]

Well, we do have the above suggested consolidation, at least for now..

Meanwhile, this isn't good news for PayPal's Venmo:

Nineteen U.S. financial firms -- including titans such as JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. as well as regional lenders and credit unions -- have signed up for a new real-time payments network dubbed Zelle. The venture, replacing an existing system called clearXchange next year, will be accessible to more than 76 million mobile banking customers when it starts, according to a statement Sunday from Early Warning, the bank-owned entity handling the project.

Banks Challenge Venmo With New Payments Network Dubbed Zelle - Bloomberg

[admin]

A little older, but a very good article explaining the mechanics of the payments system:

Many companies are attempting to use mobile wallets to eliminate the need to carry cash and plastic cards. Powerful entities are attempting to acquire space on your phone. Phone manufacturers are rolling out products with Apple Pay (NASDAQ:AAPL), Samsung Pay (OTC:SSNLF), Google Pay (NASDAQ:GOOG) (NASDAQ:GOOGL) and Android Pay. These networks have products like Visa's Check Out, MasterCard's MasterPass and PayPal (NASDAQYPL). Banks are slowly getting involved, but many are afraid to spend millions investing in constantly changing technology. Currently, retailers have also followed suit. The Starbucks (NASDAQ:SBUX) payment app has been wildly successful and it now represents 15% of all of its US purchases.

The PayPal Opportunity - PayPal Holdings, Inc. (NASDAQYPL) | Seeking Alpha

As merchants accept chip cards, NFC technology will ultimately get enabled. As this happens, the number of locations where digital payment transactions can occur will dramatically rise. The tipping point is coming shortly as NFC becomes the dominant technology at most point-of-sale terminals. We believe that once mobile wallets become more prevalent, we will see digital payments increase exponentially.

The PayPal Opportunity - PayPal Holdings, Inc. (NASDAQYPL) | Seeking Alpha

With contactless payment capability, merchants could materially improve traffic and sales. Retailers could reach customers on their ever-present devices in real-time. Think of the functionality of sending a consumer an afternoon coupon for Starbucks as he walks or drives by a location. Think of the benefits to a consumer of keeping coupons or promotional offers automatically on his smartphone. Loyalty programs would be dramatically improved, as information about prior transactions and benefits would safely be stored online and on one's phone.

The PayPal Opportunity - PayPal Holdings, Inc. (NASDAQYPL) | Seeking Alpha

The process of completing a purchase transaction may seem simple (occurring in a few seconds), but various players participate in this complicated system. It starts with a merchant and a consumer. The average US credit card transaction is $88. On average, this transaction will generate $2.50 in fees split among 3 to 4 players. The merchant discount rate (called the MDR) is the total fee that a retailer pays to accept any cards. This total fee can be broken into separate pieces, since there are multiple players involved. The bulk of these fees (roughly 70% or $1.75) go to the card issuer for accepting credit risk. This is typically the bank that has issued the card to the consumer, and is commonly referred to as credit interchange.

The PayPal Opportunity - PayPal Holdings, Inc. (NASDAQYPL) | Seeking Alpha

PayPal (like its payment network peers) generates most of its revenue by taking a little piece of the price of every purchase processed through its platform. This "take rate" typically runs $0.30/transaction plus 2.9% to 3% of the purchase price. Rates can vary depending on the type of merchant, whether a card is present (in-store or online) or the ultimate funding source (credit or debit). If a purchase is similar to a traditional credit card transaction, PayPal will pass-through or pay out 2% of its gross revenue. The margins are obviously much less with these transactions. If a transaction uses PayPal's debit connection with a consumer's bank account, revenue and margins are much higher. As business continues to evolve, we have seen the primary device change from the PC to the smartphone. PayPal has adapted, but so have other players. Visa and MasterCard are developing similar online products to replicate PayPal's online presence. Once again, it is the financial institutions providing the credit that immediately benefit, but the payment networks receive the long-term rewards. Banks favor card usage because it generates revenue and income from their customers. Usage of the ACH network incurs a cost for banks in terms of lost revenue and added complexity. In the event of a chargeback or problem, the bank and card issuer receive the angry phone call, rarely PayPal.

The PayPal Opportunity - PayPal Holdings, Inc. (NASDAQYPL) | Seeking Alpha