PayPal's Pay With Venmo Could Positively Surprise Next Year, KeyBanc Says

Paypal Holdings Inc PYPL may have a breakout hit on its hands with its Venmo mobile payment service. A new Paypal user survey suggests customers are falling in love with the company’s social person-to-person payment app Venmo.

The Analyst

KeyBanc analyst Josh Beck maintains an Overweight rating for Paypal and raised the price target from $85 to $90.

The Thesis

KeyBanc recently surveyed more than 500 consumers and asked them whether they preferred “Pay with Venmo” or the traditional “Paypal” option. Venmo was the preferred option for 76 percent of respondents.

“Our data suggests a strong consumer preference for this new checkout method, likely driven by brand affinity and unique social components,” Beck said. (See Beck's track record here.)

KeyBanc estimates that Paypal gets a 4-cent EPS boost for every $10 billion in monetized payment volume. The firm is projecting about $75 billion in Venmo payment volume in 2019.

Beck said Payal and Venmo are now transitioning from the investment phase of their cycle to the harvesting phase, a move that should be good news for Paypal investors.

The potential market size and growth opportunity for Paypal is mind-boggling. After taking the China market and Amazon.com, Inc AMZN’s share of the global market out of the picture, KeyBanc estimates that Paypal can capture about two-thirds of all incremental global e-commerce dollars. The firm is calling for 4 percent annual payment market share growth as Paypal continues its push to displace credit cards as the preferred checkout option.

Price Action

Paypal stock was down 0.9 percent on Friday but remains up 90.1 percent year-to-date.

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Photo courtesy of Paypal.