Baird affirms PayPal (Nadaq: PYPL) at Outperform with a price target of $45 following recent Apple chatter and its completion of the Xoom acquisition.

Analyst Colin Sebastian noted the following points:

• Apple Pay remittance threat is misunderstood: In contrast to the commodity domestic money transfer market, there are high barriers to entry in the cross-border remittance market, including regulations/compliance, costs and brand-building, and even more significant, management of fraud risk. We believe that combining PayPal’s scale and resources along with Xoom’s well-established remittance service should drive accelerating growth. While ApplePay could present a bigger challenge to Venmo, we believe there are clear advantages for a focused and cross-platform offering.
• Machine learning underpins strong risk management system. Xoom is the only pure-play remittance company that offers competitively priced instant transfers at fraud-loss rates of <20 bps (vs. roughly 100bps online loss rates for others). Xoom’s risk management system is based primarily on machine learning and predictive analytics from millions of transactions and billions of other data points.
• Plenty of room for further market share gains. Xoom has <10% overall market share in existing markets, and <1% share of the money transfer market globally. We believe four key areas of growth include expanding share in existing corridors; adding new markets from the U.S; adding new origination markets, such as Canada, UK, Australia, western Europe, doubling TAM; and growing adjacent services.

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