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PayPal Investors Overreacted To Apple Pay News, Says Goldman Sachs

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PayPal Investors Overreacted To Apple Pay News, Says Goldman Sachs
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Goldman Sachs' James Schneider said the 3.5 percent decline in Paypal Holdings Inc (NASDAQ: PYPL) shares appears to be overdone, since the company’s medium-term growth trajectory is not impacted by the recent update on Apple Pay.

There are reports suggesting that Apple Inc. (NASDAQ: AAPL) may release Apple Pay on its mobile Safari browser later in 2016. Separately, PYMNTS and InfoScout released their quarterly Apple Pay tracker, which suggested an increase in Apple Pay’s initial adoption to 23 percent of users. However, data also indicated a decline in repeat usage, down 24 percent quarter-over-quarter and 41 percent year-over-year.

Related Link: How Much Does Apple Pay Matter?

Pressure On PayPal Shares Excessive

Schneider wrote, “Although we recognize the headline risk to PayPal, we see the stock reaction as overdone as we see its medium-term growth trajectory as unchanged in light of our view that merchant loyalty/rewards programs will be needed to drive greater repeat adoption.”

The announcement was widely expected by the Street, and the decline of 3.5 percent in PayPal’s shares on March 24 appears excessive. Although Apple Pay continues to have strong initial adoption by consumers, there is limited medium-term risk to PayPal’s fundamentals, since regular use of Apple Pay by consumers is likely to be low in the absence of a strong rewards/loyalty system being integrated by merchants, Schneider explained.

Goldman Sachs has a Buy rating for PayPal, with a price target of $46.

Latest Ratings for PYPL

DateFirmActionFromTo
May 2017Stifel NicolausDowngradesBuyHold
May 2017FBN SecuritiesUpgradesSector PerformOutperform
Apr 2017PiperJaffrayUpgradesUnderweightNeutral

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