How The Xoom Acquisition Gives PayPal 'Instant' And 'Compelling' Capabilities

In a report published Friday, Keefe, Bruyette & Woods analyst Sanjay Sakhrani maintained an Outperform rating on

, with a price target of $70, after news of

entering into an agreement to acquire

. Xoom is a digital money transfer provider and its acquisition allows PayPal to offer an additional product to existing customers and "broaden its appeal to new customers, while also heightening customer engagement (remittance is a high-repeat business) with a focus on key regions (more specially, Mexico, India, the Philippines, China and Brazil)," analyst Sanjay Sakhrani said. In the report Keefe, Bruyette & Woods noted, "Additionally, international money transmittance is a highly adjacent business to P2P payments and digital wallets, which is PayPal's core business…Despite a fairly rich valuation, XOOM is growing quickly and brings to the table a scalable, bolt-on platform to help offer additional value-add and adjacent services to existing customers." PayPal plans to finance the acquisition entirely with cash and expects the deal to close in 4Q15. In view of the expected onetime integration costs, the deal is expected to be "slightly dilutive" to PayPal's non-GAAP EPS in FY16, Sakhrani mentioned. Sakhrani believes that enhancing its consumer value proposition is "the right thing" for PayPal to do. Moreover, the company's cash position at the time of the split was estimated at about $6 billion. "…we are encouraged by the company's willingness to add to its technological capabilities and continue to build its competitive moat," the report added.