Bernstein: PayPal's Potential Is 'Untapped,' Better Than Apple Pay And Google Wallet

In a report published Tuesday, Bernstein analyst Carlos Kirjner discussed

's PayPal, noting that "PayPal is to payments what

is to retail or

to entertainment." Kirjner noted that PayPal is successfully using both the Web and mobile to "fundamentally change" how an important set of transactions occurs. The analyst continued that this transformation is only in its early beginning and there is a "vast untapped potential," as more and more transactions continue to shift online. Kirjner estimated PayPal's revenues will grow by a compounded annual growth rate of at least 17 percent over the next three years and record revenue of at least $10.8 billion in 2016. Given the impressive growth rate, the analyst suggested that

's and

's competing online payment services as being "at worst a minor short to medium term headwind to PayPal's online TPV (total payment volume) growth." "Although it is impossible to dismiss the threats from Apple and Google outright, given their scale and assets, we think that on balance PayPal's position in mobile is strong," Kirjner wrote. "We think so due to its relatively large, growing, and attractive user and merchant base, the limited reach of iOS devices and even more limited reach of Apple Pay, the fragmentation of Android, and the historical difficulty PayPal challengers have faced in driving widespread adoption and use of new wallets online." Finally, Kirjner noted that PayPal is not expected to pursue significant value-creation opportunities offline, and any traction gained by Apple or Google in the offline space is not material for the investment case on eBay/PayPal. Shares of PayPal were valued by Kirjner at $43 per share based on a 25x multiple to his estimated 2016 adjusted diluted earnings per share of $1.56 plus approximately $5 per share in net cash and investments. Shares of eBay remain Outperform rated with an unchanged $73 price target.