Paypal's Mastercard Deal Could Be First Step On Path To Peace With Payment Processors

Mastercard Inc MA and Paypal Holdings Inc PYPL inked a new agreement Tuesday in which Mastercard will become a payment option within PayPal, expand PayPal's presence at the point-of-sale through tokenzation services from MasterCard, and make Masterpass a payment option for Braintree merchants.

According to Cantor Fitzgerald's Youssef Squali, the partnership between Mastercard and PayPal has been anticipated following a similar deal PayPal signed with Visa Inc V. Nevertheless, the "often acrimonious relationship" between PayPal and the payment processors could turn into a relationship that is "beneficial for all."

Squali continued that the agreement provides "long-term transaction fee certainty" for PayPal, creates volume-based economic incentives and paves the way for PayPal to realize future opportunities at the point-of-sale, which has been a "challenging" area for Paypal to "crack."

The analyst also suggested that by partnering with both MasterCard and Visa, Paypal's could become an overall more "successful" company.

"We view both the Visa and MasterCard deals strategically as net positives for PayPal longer-term, even though they're likely to drive transaction costs higher and pressure margins shorter-term," Squali wrote.

His price target (and Buy rating) of $46 is based on a 5-year discounted cash flow valuation and also implies multiples of 4.6x, 17.3x and 31.3x, respectively.