Oppenheimer Initiates Paypal At Outperform

Oppenheimer’s Glenn Greene believes that Paypal Holdings Inc’s PYPL
“first-mover advantage and wide brand recognition have allowed the company to build and scale a nearly ubiquitous digital payments platform with robust consumer and merchant adoption.”

Greece initiated coverage of the company with an Outperform rating and price target of $43.

Positives

The analyst pointed out that PayPal has an attractive business model, which is characterized by relatively low capital requirements, transaction-related fees and robust free cash flow generation.

However, Greece also noted that the company’s dependence on existing industry infrastructure makes “PayPal’s positioning within the payment processing ecosystem is less attractive than that of the card networks.”

Overall, the analyst believes that the company’s robust near to intermediate term growth prospects and reasonable valuation offset these concerns.

Platform Benefits

PayPal’s two-sided digital payments platform, which comprises 170 million consumers on one side and 14 million merchants on the other, benefits from robust network effects, which have driven consistent constant-currency total payment volume growth of more than 25 percent over the past 8 quarters.

In addition, “PayPal benefits from the ongoing secular transition toward electronic payments, away from cash and checks, which we anticipate will continue for some time,” the analyst said.

Total payment volume growth is expected to continue to be strong in the near term.