PayPal Will Be Just Fine Without eBay

PayPal Holdings Inc (Nasdaq: PYPL) stock took quite a hit earlier this month when former parent company eBay Inc (EBAY) announced it will be dropping PayPal as its primary payment processor starting in 2021.

But after initially plummeting more than 11 percent, PayPal stock has since stabilized, and analysts say PayPal is a long-term buying opportunity now that its split from eBay has been fully priced in.

Bank of America analyst Jason Kupferberg says PayPal will take a 15 percent earnings hit in 2021 when its back-end payment processing contract with eBay expires. However, Kupferberg says by that time PayPal will have more than made up the difference.

Over time, he says PayPal’s reliance on eBay will naturally lessen as the international payments business expands, and investor concerns about life after eBay will dissipate. Instead, Kupferberg says investors will focus on PayPal’s leading position in the high-growth electronic payments market.

Kupferberg says PayPal has strong business fundamentals, and Bank of America projects the company will consistently beat consensus earnings estimates in the coming years.

“We continue to believe that no company in our coverage universe is better-positioned than PYPL to capitalize on the inexorable trend favoring the global mix shift of payments from offline to online/digital channels, and see scarcity value in the stock,” Kupferberg says.

William Blair analyst Robert Napoli says PayPal’s strongest revenue growth in recent years has come from outside of its eBay business. EBay’s total share of PayPal’s revenue already declined from 29 percent in 2014 to 22 percent in 2016. Napoli projects that share will decline to just 6 percent by the time the current eBay deal expires in 2021.

“We believe PayPal’s familiarity with consumers, brand, scale, global presence and technology represent competitive advantages over most current competitors and new entrants not only in the United States, but in many markets around the globe,” Napoli says.

William Blair has…

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