Piper Jaffray's Gene Munster Slaps An Underweight On Paypal

In a report published Tuesday, Piper Jaffray analyst Gene Munster initiated coverage of Paypal Holdings Inc PYPL with an Underweight rating and price target of $30. The analyst believes that a potential increase in competitive offerings over the forthcoming six to 24 months might put pressure on the stock's multiple.

"As Android Pay and Apple Pay gain traction at POS and extend their offerings into the mobile/desktop web payments landscape, we believe consumers will, for the first time, be faced with a real alternative to PayPal," Munster said.

The analyst, however, expects PayPal's fundamentals to remain robust in the near term, while in the longer term, investors are expected to compress the multiples that they are willing to pay to acquire the stock.

"PayPal has never faced significant, concentrated competition at eCommerce checkout, but with ~50 percent of TPV likely on mobile by the end of 2016 we expect a significant portion of checkouts to allow consumers multiple options," Munster added.

The analyst also expects competition from Amazon.com, Inc. AMZN and Facebook Inc FB to increasingly intensify going forward, as Amazon leverages its Prime subscriber base and fulfillment capabilities on other merchant sites, while Facebook leverages its enormous user base for pay options.

Also, PayPal's ability to charge for its retail/financial system is likely to be at risk of compression in future, given that Apple Inc. AAPL and Google Inc GOOGL are more interested in generating engagement and achieving a better tie in between online ads and offline spending, respectively, than monetizing their transactions.