Several Wall Street analysts weighed in on PayPal (PYPL) this morning ahead of the company's expected April 24 earnings report. While UBS analyst Eric Wasserstrom said he is moving to the sidelines and downgraded the stock to Neutral, his peer at Morgan said PayPal is maintaining its acceptance lead among retailers. Additionally, Barclays analyst Ramsey El-Assal raised his price target for PayPal following an analysis on the company's global digital marketplaces opportunity.
UBS MOVES TO THE SIDELINES: UBS analyst Eric Wasserstrom downgraded PayPal to Neutral from Buy as he contends that its Venmo app leads and monetization are already priced into the stock, leaving little for earnings upside. The analyst told investors in a research note that his analysis of PayPal's core operations indicates "limited beat-and-raise potential" over the next two years and said his "bull scenario" for Venmo monetization would only add 2% to his current 2020 earnings estimates. While Venmo maintains a leading competitive position in people-to-people payments, Wasserstrom argued that this competitive position will translate into "limited" revenue and net income contribution over the next two years. Further, the analyst said he sees limited valuation upside in shares of PayPal at current levels. "While our longer term view of PayPal's fundamentals remains constructive, we believe most positive factors are now priced in," he wrote. Despite the downgrade, Wasserstrom raised his price target to $120 from $101.
NOTABLE PRICE TARGET CHANGES: Meanwhile, Wassterstrom's peer at Morgan Stanley, James Faucette, raised his price target on PayPal shares to $113 from $103 and maintained an Overweight rating, telling investors in a research note of his own that his analysis indicates that PayPal now has acceptance at 76% of the top 500 U.S. internet retailers and that, on a volume-weighted basis excluding Amazon (AMZN), the company's acceptance penetration was 79% in the first quarter. He believes this acceptance lead compared to other digital wallets is underappreciated by investors as a key indicator of future payment volume growth and should enable PayPal to grow at or above the rate of e-commerce excluding-Amazon. With the stock trading at all-time highs, Faucette contended that expectations are "elevated," potentially adding some "noise" going into Q1 earnings, but says PayPal remains one of his’ preferred names in Payments, and is likely to deliver compounding returns through the medium term.
Separately, Barclays analyst Ramsey El-Assal raised his price target for PayPal to $125 from $117 and reiterated an Overweight rating on the shares following an analysis of the company's global digital marketplaces opportunity. In his research note, El-Assal said that the global digital marketplace opportunity remains one of PayPal's most compelling. The analyst said that even if China's largest marketplaces and Amazon are excluded, he sees a sizable opportunity for PayPal at other global platforms. For example, the analyst stated that the 2021 total addressable volume of ex-China and ex-Amazon marketplaces not currently served by PayPal is around $413B. El-Assal believes the company's opportunity outside the U.S. is "substantial." Further, he said PayPal's recent strategic investment in MercadoLibre (MELI), a marketplace and financial services company based out of Argentina, has "rekindled" investor interest in the global marketplace opportunity, and said he "would not be surprised" to see further integration or partnering between the two platforms down the road.
WHAT'S NOTABLE: On Tuesday, Loop Capital analyst Joseph Vafi raised his price target on PayPal to $100 from $86, saying the "impressive run" for the stock has been driven by the "growing ubiquity" of its payment platform that "translated into sustainably strong payment volume growth of approximately 25%." However, the analyst maintained a Hold rating, stating that in spite of the payment volume growth, the "take rates and transaction margins" for PayPal have been "more challenged," while expectations for its monetization of Venmo platform "remain high." Vafi further warned that "any slowdown to payment volume growth" could result in an "exaggerated slowdown to earnings growth."
PRICE ACTION: In morning trading, shares of PayPal are down 0.5% to $107.65.
Keywords: earnings, analyst, commentary, price target, downgrade, digital marketplace, Venmo