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PayPal Off To A Good Start

You are here


PayPal Off To A Good Start

July 21 2015, 07.14am GMT


E-commerce has taken off in leaps and bounds over a broad front of economic activity from online retail sales to airline bookings and subscriptions to numerous streaming services, creating fertile ground for leading payment services provider PayPal to expand its client base.

PayPal (PYPL, +5.42%), which was spun off from eBay (EBAY, +2.40%) on Friday after the close of business, opened on Monday at $39.90, rising to over $40 by midday. The market dominance enjoyed by PayPal together with its strong organic revenue growth, are reasons quoted by analysts expressing bullish views for the stock.

The spin off from eBay came after activist investor Carl Icahn called for such a move in September 2014. This spinoff will allow each company to focus on their respective business models at a time when eBay has recorded a transaction revenue decline of 2% over the past year and will have to find a new growth strategy going forward. PayPal was founded in 1998, going public in 2002. Later that same year, it became a subsidiary of eBay.

PayPal, on the other hand, is going through a rapid growth phase with reports of 169 million users and transaction volumes up by 27% in the second quarter over the same period last year. A total of $1.1 billion in payments was processed during the second quarter.

Dan Schulman, president and chief executive designate of PayPal, said in a statement, “Our strong results this quarter give us tremendous confidence that we are on the right path as we take the next steps in our journey.”

Amongst the bullish analyst views reported is that from J.P. Morgan analyst Tien-tsin Huang who wrote in a note to investors, “PayPal is a gorilla among independent digital payment service providers. With more than 160 [million]  active accounts, global scale and brand recognition, [it] could offer real strategic value to leading commerce/content/social/device platforms seeking better user monetization as well as financial institutions/technology firms seeking richer digital content.”

Meanwhile, Nomura analyst Bill Carcache emphasized in a note that PayPal’s independence from eBay would have the effect of opening new doors allowing it to partner with companies previously off limits. This increases its potential for growth. Carcache initiated coverage at buy, setting a target price of $46.

Data compiled by Bloomberg indicated that PayPal would have a market capitalization of $46.6 billion, larger than that of eBay which shrank to $34 billion after the spinoff.

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