Wall Street Is Once Again Chummy With PayPal
The intermission is over for PayPal Holdings.
Shares of the online-payments giant took a sharp tumble in July after it lowered its revenue growth forecast for 2019 from a range of 16% to 17% to a range of 14% to 15%, citing in part slow progress on some of the new partnerships it is building. Investors were hoping those projects, such as a partnership with electronic bill-payments company Paymentus, would more than make up for what it may lose when its operating agreement with eBay -its former corporate sibling-ends next year.
Relief washed over Wall Street on Wednesday when PayPal said it is on track to at least hit the high end of the range this year, at 15%, and then to resume its medium-term trajectory with 17% revenue growth next year, which includes the ramp up of Paymentus and other new efforts. The shares were trading up as much as 9% after hours Wednesday.
That should resolve some of the short-term fears around the company, which probably were overblown anyway. PayPal has achieved reliably big growth in transaction volumes and maintained roughly 45% annualized net income growth since the start of 2017, which has translated into nearly equal gains in stock price.
PayPal's checkout button remains the leading payment option on the web, with 78% of the top 500 internet retailers offering it, according to analysts at MoffettNathanson. The next most common is Amazon Pay at just 11%. Apple Pay is represented at just 1% of retailers, the analysts said. Merchant services are 92% of PayPal's total payment volume, and excluding eBay were up 31% year over year in the third quarter.
PayPal expects eBay to represent just 6% of total payment volume a year from now when the operating agreement ends, the company said Wednesday. It forecasts the end of the agreement to be just a 1-percentage-point drag on revenue growth in 2020.
Meanwhile, other transaction buckets are growing. Venmo transactions grew 64% from a year earlier in the latest quarter. Promoting Venmo as a payment method at merchants, offering instant bank transfers (paid for by customers) and cash-back deals (paid for by merchants) have helped generate revenue. Venmo is now on track to rake in about $400 million in annualized revenue, with 35% of users now being "monetized."
PayPal's valuation multiple has risen as high as 37 times forward earnings in recent years, but as of market close Wednesday stood at around 28 times, roughly where it was in August 2015.
With some of the growth concerns resolved for now, that makes PayPal a relatively inexpensive way to bet on electronic payments, especially compared with even more richly valued Square or Adyen. The correction in PayPal shares since July is a buying opportunity.
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