PayPal (PYPL) Facing 'Near and Present Danger' in Digital Payments; CLSA Starts at Underperform

September 3, 2015 6:37 AM EDT
Get Alerts PYPL Hot Sheet
Price: $86.97 -0.79%

Rating Summary:
    42 Buy, 13 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 6 | Down: 13 | New: 58
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(Updated - September 3, 2015 9:25 AM EDT)

CLSA initiated coverage on PayPal (NASDAQ: PYPL) with an Underperform rating and a price target of $36. Analyst Tom McCrohan expressed concerns about the increasingly competitive landscape, and he doesn't think its offering is an unattractive option for major retailers. He also doesn't think the stock is worthy of a multiple above Visa (NYSE: V) and MasterCard (NYSE: MA).

McCrohan explained, "A near and present danger exists to PayPal’s model as new mobile and online alternatives are challenging the company’s value proposition to consumers and merchants. Achieving mid-20% Total Payment Volume (TPV) growth will require concessions, although it remains unclear if PayPal can offset any gross margin pressure with operating leverage. Our US$36 target assumes a forward multiple of 24x, in line with Visa and MasterCard. We do not view PayPal as worthy of a multiple materially greater than Visa and MasterCard, particularly given PayPal’s challenging competitive landscape."

"Convincing a major retailer to accept PayPal would require offering an acceptance cost in line or below what the retailer pays today for other tender types (credit/debit), or an opportunity to drive incremental sales otherwise unavailable with other forms of payment. Our checks indicate major retailers pay an average cost of 100bps (or lower) to accept plastic, which is too low for PayPal to realistically compete. Paying above this rate would imply a major retailer wants access to PayPal’s customer base, either because PayPal customers pay more on average or are incremental customers to the retailer, or both. We don’t view either to be true," added the analyst. "Apple Pay customers spend a lot; PayPal customers? . . . not so much."

For an analyst ratings summary and ratings history on PayPal click here. For more ratings news on PayPal click here.

Shares of PayPal closed at $35.07 yesterday.

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