Atlantic Sets New Neutral Rating On PayPal, Warns Of Long-Term Uncertainty

Atlantic Equities’ Chris Hickey initiated coverage of Paypal Holdings Inc PYPL with a Neutral rating and price target of $43.

Tailwinds

Hickey expects the company to see tailwinds through 2017, including the ongoing over 25 percent payment volume growth, driven by PayPal’s core e-commerce, Braintree and other recent acquisitions, as well as the rollout of One Touch and the integration of Venmo.

“However, this is balanced by the risk that fears around long-term competition increase rather than abate, which could impact the stock's multiple given limited visibility into sustainable growth and margins,” Hickey pointed out.

The analyst expects PayPal to meet its target of mid-20 volume growth over the next couple of years, modestly beating the consensus expectations.

Related Link: PayPal Investors Overreacted To Apple Pay News, Says Goldman Sachs

Increased Competition

In the longer term, the company is expected to face significant competitive threat, both to its pricing and market share, which could pressure the stock performance.

Both Visa Inc V and Mastercard Inc MA have launched “credible alternatives” to PayPal’s Wallet.

On the other hand, platform owners, including Apple Inc. AAPL, “threaten to commoditise the attributes of convenience and safety that drove much of PayPal's success over the last decade,” Hickey mentioned.

M&A Strategy

The analyst also highlighted the company now had a strategy to defend its position and to improve engagement through additional services for consumers and merchant offerings.

The recent acquisitions are likely to offer cross-selling opportunities, although “prospects for sustainable differentiation in each of these businesses is still questionable,” Hickey added.