PayPal Holdings Inc (NASDAQ:PYPL) made four net additions of U.S. top 500 internet retailers in the second quarter versus Amazon.com, Inc (NASDAQ:AMZN)'s two merchant adds and Bitcoin’s flat performance, according to Morgan Stanley.
The Analyst
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James Faucette maintained an Overweight rating on PayPal Holdings with an unchanged $129 price target.
The Thesis
PayPal merchant acceptance has improved to 77%, mirroring its consumer penetration, Faucette said in a Thursday note. (See his track record here.)
PayPal's net addition of four merchants in the second quarter widened its acceptance lead versus Amazon Pay, the next largest accepted digital wallet, to around 65 percentage points, the analyst said.
This lead should allow the company to grow total payment volume “at or above the rate of e-commerce (ex-Amazon)," he said.
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PayPal should remain “the payment-of-choice for non-Amazon retailers," Faucette said, adding that the company should tap into growth opportunities in the offline market given the consumer confidence and large account base it enjoys in the online space.
Morgan Stanley projects that PayPal's second-quarter TPV growth will amount to 24.5% ex-FX. This represents a deceleration from the first quarter due to volume headwinds at eBay, the analyst said.
Faucette said he expects PayPal to report second-quarter total net revenues and operating margins of $4.337 billion and 23%, respectively. He expects EPS to come in at 84 cents, significantly higher than the consensus estimate of 73 cents.
The consensus projection does not seems to have included gains on equity investments, according to Morgan Stanley.
Price Action
PayPal shares were trading down slightly at $118.72 at the time of publication Thursday.
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