By: Matt Rego
This morning, BMO Capital Markets released a new report that initiated coverage on PayPal Holdings (PYPLV) . Formerly a part of eBay, PayPal was spun off on July 16, 2015 to form a separate company. While there may be some growing pains and stumbles in the beginning, as the company gets used to its new autonomy. Paul Condra, analyst at BMO Capital Markets, initiated PayPal with an “overweight” rating and a price target of $46.00, which represents about 20% premium from Friday’s close. Condra maintains that PayPal is destined to succeed due to its easy brand recognition, strategic acquisitions, and valuation.
Mobile and P2P payment methods continue to see highest growth in payment forms, PayPal stands to benefit
Mobile payments and P2P payments have been a huge focus for companies over the past several years (think Apple Pay), but these are two areas that PayPal competes very well in, in addition to more traditional remittance services as well. While PayPal is no threat to the payment services behemoths Visa and Mastercard, BMO Capital Markets believes that PayPal will shift focuses to mobile payments for dominance. However, some of the company’s recent acquisitions such as Braintree, Venmo, Paydiant, Xoom, etc, have given the firm access to even more areas such as P2P payments with the Venmo acquisition. Venmo app alone is forecast to process $5-6 billion this year alone, which represents massive opportunity for PayPal. The Braintree acquisition was important because it effectively entered PayPal into the “in-app” payment industry. This is huge just from the standpoint that PayPal has Uber, Lyft, and Airbnb as clients.
BMO sees attractive valuation, outlook for PayPal
BMO Capital Markets suggests that the company has an attractive valuation in addition to its payment services and strategic acquisitions. Revenue is estimated at coming in 16% growth from 2014 with $9.28 Billion estimated revenue for full year 2015. For full year 2016, revenue is forecasted to increase 18% from 2015 to $10.98 Billion. Lastly, 2017 revenue estimates from BMO forecast a 15% increase from 2016 to $12.662 Billion. During the same period, BMO sees PayPal’s price to earnings ratio decrease from 30.8 in 2015 to 25.4 in 2016 to 21.7 in 2017, estimated. Furthermore, price earnings growth (PEG) is forecast to reach 1.5 in 2015, 1.2 in 2016 and 1.3 in 2017.
Overall, PayPal has been living in the shadow of eBay forever, and now it appears that investors will be able to unlock the full, true value of PayPal, now that it has spun off into a separate entity. The companies excellent acquisition portfolio, payment services and $6 billion from the spin off will help propel the company into a new era of mobile payment dominance for the new public company.