Why PayPal Seems Cool Again
PayPal has a strong track record of diffusing threats within the payments industry, and that has one analyst feeling optimistic that mobile wallets like Apple Pay won’t be a problem for the company.
Merchants can now add buttons for Apple Pay, Samsung Pay, and other digital wallets to their sites, but it’s hard to get people to change their behaviors. PayPal has been around since the late 1990s, much longer than all of the newcomers, and it has about 200 million users who already store payment information with the service.
“There’s a difference between competition and disruption,” Jefferies analyst Jason Kupferberg tells Barron’s Next. “None of these competing solutions have brought compelling enough value propositions to get consumers to switch.”
The company’s latest quarterly results didn’t show any indication of Apple Pay hurting its business, even as Apple itself touted strong growth for Apple Pay.
PayPal likely doesn’t have to worry about Visa or Mastercard either, he says. In the beginning, the company tried to get users to pay in ways that bypassed the credit-card networks, but it’s since changed its tune. PayPal and the card companies went from being “frenemies with undertones of real resentment” to partners.
That’s key, says Kupferberg, because it means Visa and Mastercard aren’t waking up every day trying to destroy PayPal. It also means less friction on the consumer end, making people more willing to use the service.
Another thing working in PayPal’s favor: its Braintree payment-processing platform. Even when consumers do choose to use Apple Pay, their payment may go through Braintree. That doesn’t bring the company as much money as having someone pay directly with PayPal, but it’s something.
Kupferberg called PayPal’s $ 800 million purchase of Braintree in 2013 “one of the best acquisitions in modern payments history.” It’s probably worth far more today, given that smaller rival Stripe is now worth $ 9 billion. Braintree powers payments for major startups like Uber and Airbnb.
With 70% to 80% of global transactions still done in cash, there’s a big opportunity for digital-payments companies to gain traction. Looking ahead, as far as winners in the industry, Kupferberg told us PayPal “is at the top of the list.”
He thinks shares can hit $ 52, 25% above a recent $ 41.70.
Big Picture: The overwhelming majority of transactions are still made via cash, and PayPal is still poised to benefit from a shift toward more digital payments.