Morgan Stanley: Paypal-iZettle Deal Presents A Challenge To Square

Paypal Holdings Inc PYPL confirmed it will acquire Sweden-based iZettle, a financial technology startup that sells credit card readers with a presence across Europe and South America. The move pits Paypal directly against Square Inc SQ, according to Morgan Stanley.

The Analyst

Morgan Stanley's James Faucette maintains an Equal-weight rating on Paypal's stock with an unchanged $43 price target.

The Thesis

Paypal's $2.2-billion acquisition of iZettle gives it new exposure in 12 global markets and is "likely to be a check" on Square's international expansion, Faucette said in a research report. (See the analyst's track record here.) 

Square's focus on four major markets — including the United Kingdom, Japan, Canada and Australia — could be "challenged" by Paypal's desire to accelerate its newly acquired asset's growth and scale.

Square boasts a "strong brand recognition" in the U.S. market and is the clear leading provider of payment services for small- and medium-sized businesses, meaning that Paypal is unlikely to challenge Square's established domestic market, the analyst said. 

Price Action

Paypal shares were trading higher by 2.35 percent Friday morning while Square shares were down 0.73 percent. 

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Photo courtesy of Square.