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Goldman Starts PayPal At Buy: Here's Why

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Goldman Starts PayPal At Buy: Here's Why
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eBay Inc (NASDAQ: EBAY) is in the final stages of splitting off its PayPal (NASDAQ: PYPL) division and analysts are already bullish on the online payment service whose shares will be available for the public to buy on July 20.

In a report published Tuesday, Goldman Sachs analyst Heath P. Terry initiated coverage of PayPal with a Buy rating and $48 price target, noting the company's "unique asset" in a "rapidly evolving payments world."

"We believe PayPal's two way flow of payments across its trusted network of 165 million users, 203 countries, and 100 currencies make it a unique asset in the fast growing and rapidly changing market for internet enabled payments," Terry wrote. "While investor focus is on competitive uncertainties, near term margin pressures from mix shift, and needed investment, we believe PayPal's value is best proven by other, primarily larger, companies' numerous failed attempts at replicated it."

Related Link: Bernstein: PayPal's Potential Is 'Untapped,' Better Than Apple Pay And Google Wallet

Terry said that PayPal accounts for less than 1 percent share of the total $34 trillion payments market and the company is in a position to expand its user base by offering credit, new merchant relationships, and mobile and POS (point of service) acceptance. The analyst noted that these are "critical" steps the company needs to take to accelerate growth.

In addition, PayPal's service is currently accepted at over 10 million merchants, most of which are online. The company attempted to enter the offline space over the past two years and these initiatives have "fallen flat." According to Terry, PayPal's growth strategy needs to incorporate the offline market and the company needs to "refresh and expand" its strategy and technologies to gain better traction.

Finally, Terry stated that post spin-off from eBay, PayPal will hold a pro-forma cash and cash equivalents balance of $6.2 billion. This liquidity would enable the company to pursue strategic investments and acquisitions in order to accelerate growth in both the online and offline space.

Latest Ratings for EBAY

DateFirmActionFromTo
Oct 2016Hilliard LyonsUpgradesLong-Term BuyBuy
Oct 2016WedbushMaintainsNeutralNeutral
Sep 2016Deutsche BankUpgradesHoldBuy

View More Analyst Ratings for EBAY
View the Latest Analyst Ratings

Posted-In: Goldman Sachs Heath Terry Online Payments PayPalAnalyst Color Price Target Initiation Analyst Ratings

 

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