The adoption of e-commerce and rise of digital payments have been some of 2020’s key trends. PayPal (PYPL) has been one of the prime beneficiaries. The evidence was clear to see in its Q2 performance - PayPal’s strongest quarter since becoming an independent public company.
The market has rewarded the performance, and shares are up by 97% year-to-date.
Heading into Q3’s earnings announcement on November 2, Deutsche Bank analyst Brian Keane expects PayPal’s excellent execution to continue.
“We expect PYPL to deliver solid 3Q20 results with potential for upside and strong continued momentum over the next few years as the company monetizes new users, drives expanding engagement, benefits from new wins ramping up, and delivers on new products and initiatives such as Venmo monetization, including the recent Venmo Credit Card launch, QR codes in-store, and Pay in 4 installments solution,” Keane said.
The monetization of Venmo - PayPal’s peer-to-peer payment app – has been very valuable to the company. Keane expects the recently launched Venmo Credit Card to “gain significant adoption.”
“Importantly,” Keane notes, “The credit card will carry better economics than the debit card, driving incremental revenue, better take rate, and margins.”
Venmo has been a stellar act this year. Its user base grew from approximately 52 million in FY19 to over 60 million in 2Q20.
Keane expects Venmo revenue to increase by 73% year-over-year in FY20 to roughly $647 million “despite instant transfer fees being waived through the pandemic and PYPL doubling the debit card cash back rewards.”
But on top of the growing demand for PayPal’s products and services, the opportunities presented by the pandemic have led the company to focus on other initiatives.
The viral outbreak has resulted in further adoption of contactless in-store payments. The recent launch of integrated QR code functionalities in PayPal’s digital wallet in 28 countries “could drive strong volumes over time for PYPL and Venmo complementing the company’s digital wallet and physical cards in-store.”
And while 2020’s macro environment has been challenging to many, Keane believes “the shift in consumer behaviors has created a unique opportunity for the company’s long-term strategy on becoming an everyday essential service.”
All in all, Keane reiterated a Buy rating on PYPL shares along with a $234 price target, which implies a 10% upside from current levels. (To watch Keane’s track record, click here)
There’s similar sentiment across the Street. Based on 25 Buys and 5 Holds, the analyst consensus rates the stock a Strong Buy. However, given the $223.54 average price target, shares are poised to stay range-bound for now.(See PYPL stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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