This Top-Rated Internet Analyst Sees 'Confident Tone, Solid Results' From PayPal

• Paypal Holdings Inc PYPL shares have lost 3 percent in the last three months, after hitting a high of $39.39 on August 3.
• SunTrust Robinson Humphrey’s Robert S. Peck maintained a Buy rating on the company, with a price target of $45.
• The company is likely to report strong quarterly results, and reiterate its full-year guidance, Peck said.

PayPal is scheduled to report its first quarter results as an independent company after its spinout. Analyst Robert Peck believes sentiment and expectations are mixed, with several encouraging data points and initiatives on one hand, and competitive and macro headlines on the other.

“We expect a positive/confident tone, solid results, and at least reaffirmation of full-year guidance. A key theme should remain better TPV vs lower take rate,” the analyst wrote.

Peck discussed the implications of some of the recent developments:

1. Braintree and Venmo: Braintree indicated that payment volume will exceed $50 billion, up more than 120 percent y/y, as compared to up about 90 percent in 2014. Venmo processed $1.6 billion in payments in 2Q15, growing 247 percent y/y. “Implication: upward pressure on TPV, downward pressure on take rate.”
2. Gaming: PayPal is reentering online gaming in the US. This market is expected to grow to $7.4 billion by 2017, according to Forbes, while fantasy sports has been estimated at $15 billion currently, as per Fantasy Sports Trade Association. “Implication: upward pressure on TPV.”
3. OneTouch: PayPal launched OneTouch in 13 EU markets. “OneTouch drives a 50% bump in mobile conversion, is enabled for hundreds of thousands of merchants (no integration required), and millions of consumers have opted in. Implication: upward pressure on TPV.”
4. Macy’s: From late September, Macy's, Inc. M began accepting PayPal in-store, online, and on mobile. Although one retailer does not make a huge impact, this development marks PayPal’s progress in signing additional large merchants, after its spin-off from eBay Inc EBAY. “Implication: upward pressure on TPV, downward pressure on take rate.”
5. EU Interchange: With effect from December 2015, new EU regulation reduces domestic credit interchange fees from around 150 bps to 30 bps. This should boost PayPal’s transaction margin temporarily. “Implication: upward pressure on transaction margin.”