PayPal Gains After Analysts Say Venmo Was Earnings Highlight

(Bloomberg) -- PayPal Holdings Inc. rallied as much as 9.5 percent after beating third-quarter estimates, boosting its 2018 forecast and providing 2019 guidance that was in-line with three- to five-year targets. But analysts said the real bright spot in the earnings report was new insight into how PayPal is making progress toward monetizing Venmo.

“Our monetization efforts appear to be reaching a tipping point,” PayPal Chief Executive Officer Dan Schulman said on a conference call Thursday, noting that 24 percent of Venmo users have participated in a “monetizable action” compared with 17 percent last quarter.

Most of Wall Street found the firm’s results encouraging, but skeptics cautioned about fairly valued shares and an earnings beat that was driven by “other value added services,” which is related to lending.

PayPal Gains After Analysts Say Venmo Was Earnings Highlight

Here’s what analysts are saying about the results:

Morgan Stanley, James Faucette

  • PayPal’s beat showed impressive growth in net new active accounts, customer engagement and Venmo monetization. 2019 guidance should “appease skeptics”
  • Wall Street doesn’t fully appreciate the growth opportunity from PayPal’s very substantial on-line acceptance lead and operating leverage potential
  • Expects PayPal to keep offering stable and compounding earnings growth, bolstered by its big acceptance lead with non-Amazon merchants, the shift toward e-commerce and its network effect
  • Morgan Stanley reiterated its overweight rating and $97 price target

Raymond James, John Davis
  • Active customers and engagement trends were encouraging and 2019 guidance was much better than expected. Venmo monetization is “picking up steam,” which may have been the biggest positive
  • The stock should reverse its recent decline given overly negative sentiment headed into earnings. Investors should build positions even after the anticipated move higher
  • Raymond James reiterated its outperform rating and $108 price target

MoffettNathanson, Lisa Ellis

  • Earnings are easy to obsess about, but investors should instead focus on partnerships, which are the “single most compelling reason to buy PayPal’s stock now.” The American Express and Walmart partnerships may just be the beginning
  • PayPal could potentially expand its Facebook pact to become the payment platform within WhatsApp, collaborate with Tencent/WeChat Pay and Alibaba/Alipay in China, and broaden its relationship with First Data
  • MoffettNathanson reiterated its buy rating and $100 price target

Bernstein, Harshita Rawat

  • Results were mixed, as the beat was entirely driven by growth in other value added services revenue, which was driven by growth in merchant working capital and international credit. Core business (transaction revenue) was also weak and free cash flow fell
  • That said, PayPal posted a beat-and-raise and gave better-than-expected 2019 guidance and encouraging Venmo commentary, and showed “stellar” execution on partnerships
  • Bernstein reiterated its neutral rating

SunTrust, Andrew Jeffrey

  • SunTrust remains cautious on PayPal’s barriers to entry and Venmo monetization; the company’s lack of a presence in the physical world makes it harder to monetize new offerings like Square does
  • PayPal’s growth is captured in its valuation; Visa and Mastercard offer better risk-reward for long-term investors
  • SunTrust reiterated its hold rating and cut its price target to $88 from $92

BTIG, Mark Palmer

  • BTIG upgraded PayPal to buy from neutral with a new $95 price target, calling the firm’s progress on monetizing Venmo “more eye-catching” than the earning beat

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