Morgan Stanley: Bitcoin Is No Threat To PayPal's Online Dominance

As an investment asset class, bitcoin gained momentum in 2017, rising 1,300 percent.The crypto also began to gain traction as a medium of exchange. Despite the hype surrounding bitcoin, one analyst at Morgan Stanley doesn't see the digital currency posing a real threat to Paypal Holdings Inc (NASDAQ: PYPL).

The Analyst

Morgan Stanley analyst James Faucette has an Overweight rating and $88 price target for the shares of PayPal.

The Thesis

PayPal's acceptance lead vis-à-vis other digital wallets continues to grow, positioning total payment volume growth to outperform broader e-commerce growth, Faucette said in a Monday note, citing Morgan Stanley's quarterly tracker. At the same time, bitcoin experienced no change and is now available at four of the top 500 internet retailers, the analyst said. 

The net merchant addition for PayPal in the first quarter was one, and it is accepted at 79 percent of the top 500 Internet retailers in the U.S., according to Morgan Stanley. The next most widely accepted accepted digital wallet, Amazon.com, Inc. (NASDAQ: AMZN) Pay, added two net new merchants and is now available at only 12 percent of the top 500 websites, Faucette said.

Visa Inc (NYSE: V) Checkout and Mastercard Inc (NYSE: MA) Masterpass lost one net merchant each, the analyst said.

Morgan Stanley does not see bitcoin as challenging Visa, Mastercard and PayPal in online acceptance. A number of cryptocurrencies, such as Dash and Litecoin, could be better designed for payment functionality, Faucette said. 

Barring Overstock.com Inc (NASDAQ: OSTK), which has added several other cryptocurrencies, Faucette said there is no trend of crypto acceptance among larger merchants.

Potential catalysts for PayPal include M&A and/or an accelerated share repurchase program, as well as an update to medium-term guidance, according to Morgan Stanley. 

The Price Action

PayPal shares have gained about 74 percent over the past year, while the Bitcoin Investment Trust (OTC: GBTC) is up 680.5 percent over the same period.

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