PayPal's 'Pay With Venmo' Could Be A Hit

Jefferies' Jason Kupferberg maintained a Buy rating on Paypal Holdings Inc PYPL, with a price target of $44.

"We continue to believe at current valuation, shares of PYPL are not getting any material credit for the potential of Pay With Venmo, which is being rolled out during 2016," Kupferberg stated.

Continuing to rate PayPal as a Franchise Pick, the analyst mentioned that a recent proprietary survey by Jefferies of 1,000 Venmo users indicated that there was meaningful interest in adopting Pay With Venmo.

According to the Jefferies report, 67 percent of Venmo users surveyed said that they would use Pay With Venmo at least 1-2 times per month, while 44 percent said that they would use it 3-5 times per month.

"During the course of 2016, PYPL will be enabling its >10M merchants to accept Venmo payments (known as "Pay With Venmo"), thereby generating traditional take rate revenue for PYPL and monetizing the Venmo asset," the report said.

However, Kupferberg cautioned that Pay With Venmo transaction might actually replace the traditional online PayPal transaction, therefore leading to some cannibalization.

The analyst also mentioned that Pay With Venmo transactions could lead to above average margins, along with incremental EPS accretion for the company. Kupferberg also believes that Pay With Venmo might be able to drive additional multiple expansion.