PayPal (PYPL), which was spun off from eBay (EBAY) in July 2015, is taking advantage of the changing payments landscape, and we believe that several trends favor the company's growth, explains Stephen Biggar of Argus Research, a leading independent research firm on Wall Street.
At its 2018 Investor Day on May 24, management said that the company had an addressable market of more than 3.6 billion internet users and had the goal of serving 1 billion of these users on its platform.
These include greater adoption of mobile devices for payments, and the technological integration of different payment types and channels. With 254 million active accounts, PayPal is a leader in innovative payment mechanisms and has strong brand recognition.
Unlike MasterCard (MA) and Visa (V), PayPal's network enables account holders to both pay and be paid for merchandise or services.
PayPal is accepted at more than 75 of the top 100 retailers in the U.S., and we expect even greater penetration in the next year. Total payment volume rose 24% to $143.0 billion in 3Q18, and the number of payment transactions rose 27% to 2.5 billion.
In our view, the company has several competitive advantages as it seeks to grow payment volumes. These include a strong international presence, with 100 million non-U.S. users in more than 200 countries.
The company also provides merchants with end-to-end payment authorization and settlement capabilities, as well as instant access to funds.
We expect the favorable cyclical backdrop of strong growth in employment and consumer spending to benefit payment processing volumes.
We also look for PayPal to benefit from the long-term secular shift from cash/checks to digital payments for convenience, safety and rewards programs, as well as from the rapid growth of e-commerce.
The company’s unique business model allows individuals to both pay and be paid for goods and services. PYPL appears favorably valued relative to peers based on our expectations for 20% EPS growth. Our 12-month target price is $100.
