The Street Still Loves PayPal

Paypal Holdings Inc PYPL reported third-quarter results Wednesday that beat estimates and prompted multiple Street analysts to reaffirm bullish stances. 

The Analysts

Wells Fargo analyst Timothy Willi maintained an Overweight rating on PayPal's stock with a $135 price target.

Morgan Stanley analyst James Faucette maintained at Overweight, $129 price target.

KeyBanc Capital Markets analyst Josh Beck maintained at Overweight, $125 price target.

Wedbush analyst Moshe Katri maintained at Outperform, $140 price target.

Wells Fargo: Bull And Bear Points

PayPal's "solid" third-quarter report should create a path for the stock to move higher as investors become more confident in the near-term story and better appreciate the longer-term growth outlook, Willi said in a Wednesday note. 

The analyst's four key bullish takeaways were: 

Merchant services growth slightly accelerated to just under 31%.

PayPal now has direct exposure to the Chinese e-commerce market through its majority investment in GoPay.

Margins surprisingly moved higher by 200 basis points.

Venmo volume grew 64% in the quarter.

Two bearish takeaways from the quarterly report were: 

Transaction growth was slightly short of expectations.

Transaction revenue was also a bit short from lower-than-expected yield.

Related Link: Canaccord Genuity Upgrades PayPal, Downgrades Square

Morgan Stanley: No Competitive Threats

Investor concerns related to growing competition were mostly put to rest in Wednesday's earnings report, Faucette said in a Thursday note.

The payment company indicated that it started increasing pricing in the December-ending quarter, sooner than expected, the analyst said. Investors should be "encouraged" by the move, as it suggests PayPal isn't losing pricing power from growing competition, he said. 

"We think it is important that PayPal continue to improve functionality in order to maintain its long-term position and sustain engagement growth, but we don't think competition is having any meaningful impact on volume growth, consumer behavior, or pricing."

KeyBanc: Impressive TPV Beat

PayPal's third-quarter beat was driven by total payment volume transacted through its platform of $179 billion, which beat the Street's estimate of $177.5 billion, Beck said in a Wednesday note.

Of particular note, merchant services — excluding eBay Inc (NASDAQ: EBAY — accelerated to 30.6% year-over-year growth, the analyst said. 

PayPal's exposure to eBay accounted for 8% of total TPV and could fall to around 6% by mid-2020, Beck said. 

On the other hand, Venmo TPV was up 64% in the quarter to $27 billion and could drive close to $100 billion in TPV by the end of 2020, he said. 

Wedbush: 'Reassuring' Guidance

PayPal's third-quarter "beat across the board" report was accompanied by a "reassuring" outlook and vision, Katri said in a Thursday note. 

The company is targeting a complete integration of Paymentus, Instagram and MercadoLibre by July 2020, the analyst said. 

PayPal's financial guidance includes 17% net revenue growth in 2020 along with 50 basis points in non-GAAP EBIT margin expansion versus expectations of 30 to 40 basis points, he said. 

Finally, PayPal's report suggests that execution challenges visible in the second quarter have dissipated and the Street can now better focus on the company's strong fundamentals, according to Wedbush. 

Price Action

Shares of PayPal were trading higher by more than 8% Thursday at $104.50.

Posted In: James FaucetteJosh BeckKeyBanc Capital MarketsMorgan StanleyMoshe KatripaymentsTimothy WilliVenmoWedbushWells FargoAnalyst ColorEarningsNewsGuidancePrice TargetReiterationAnalyst Ratings

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