After being down about 14% in mid-January, shares of PayPal Holdings Inc (NASDAQ:PYPL) have rebounded nicely and are now up about 8.5% for the year. But since the company had its initial public offering (IPO) last July, PayPal stock has remained flat. Investors don’t know what to make of PYPL stock.
That is, at least until now. A Jefferies Group analyst says there is one catalyst that could send PYPL stock higher.
Jason Kupferberg reiterated the company’s “Buy” rating on PYPL stock and maintained its $44.00 price target in a note issued to investors on Monday. The price target implies a 17.36% upside from Monday’s opening session price.
So what will get PYPL stock there?
Kupferberg believes that the online mobile payments leader’s acquisition of Venmo in 2013 will finally start to pay off. Kupferberg believes that Venmo’s “Pay With Venmo” platform could add between 2.1% and 5.5% to PayPal’s 2017 earnings. (Source: “PayPal (PYPL) Stock Advanced as Jefferies Cheered ‘Pay With Venmo’,” TheStreet, February 29, 2016.)
PayPal has essentially transformed most of its business towards mobile and Venmo helps it access a younger market.
Venmo is a social payments app aimed at millennials. The free digital wallet lets users make and share payments with friends, so they can easily split a restaurant or cab fare, for example, by linking to their debit and credit cards online.
Transferring money through Venmo is free if the account is linked to a bank account, but if drawing from a credit card, the user is charged 2.9% of the amount transferred.
In the latest quarter, PayPal revealed that Venmo processed $2.5 billon of transactions, up 174% from the prior year. (Source: “PayPal Reports Strong Fourth Quarter and Full Year 2015 Results,” PayPal Holdings Inc, last accessed March 2, 2016.)
PayPal CEO Dan Schulman told analysts though, that so far, PayPal hasn’t been able to turn the service into a moneymaker yet. (Source: “You will soon be able to shop using Venmo,” Fortune, October 28, 2015.) But that will soon change.
Schulman said the company plans to let merchants accept money through the service and that Venmo will be “fully monetized by the end of next year.” (Source: Ibid.) PayPal would charge merchants its typical 2.9% transaction fee.
The Bottom Line on PYPL Stock
Growth in mobile payments is exploding. Just this year alone, research firm eMarketer is forecasting that mobile payments will grow 210% this year, with the total value of transactions reaching $27.05 billion, up from $8.71 billion in 2015. (Source: “How mobile payments will grow in 2016,” Fortune, October 29, 2015.)
Going forward, PayPal will stand to benefit greatly from this rise in mobile payments. PYPL stock might be worth a closer look.