One Major Question PayPal Investors Aren't Asking

Paypal Holdings Inc PYPL will conduct its analyst day on May 18, and Ashwin Shirvaikar of Citi pointed out a major question that investors aren't asking. "What's missing here is an explicit question about the benefits from PayPay's re-platforming of its technology/software stack," Shirvaikar pointed out.

According to the analyst, the re-platforming is now in its final stages, without which, PayPal could neither have launched its redesigned mobile app at the same time across 145 countries, "nor could it have rapidly deployed One Touch like it has."

"Given the speed at which FinTech evolves, this re-done platform benefits both the top- and bottom-line, in our view," Shirvaikar summarized.

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In addition, PayPal would benefit from this ongoing re-platforming as use-cases such as global launch, rapid roll-out of One Touch and contextual commerce applications should each result in higher growth.

While there are obvious and significant cost advantages from re-platforming near term, the analyst says the market is underrating its long-term benefits.

"If we assume that ~$50 million of 2015's expenses is due to higher re-platforming costs and this will reduce to zero by 2017, that computes to a ~40bps tailwind to margins over two years," Shirvaikar highlighted.

PayPal closed Friday trading down 0.08 percent at $39.48. The analyst rates PayPal at Buy and has a price target of $46 on the stock.