Why This PayPal Analyst Is Bullish On $2.7B Buyout Of Japan's Paidy

On Tuesday, digital payment giant Paypal Holdings Inc PYPL announced a $2.7-billion buyout of Japanese buy now, pay later platform Paidy.

PayPal made the right move by pulling the trigger on Paidy, Bank of America analyst Jason Kupferberg said Thursday. 

PayPal's Expanding Footprint: PayPal said it expects the deal to close in the fourth quarter, and Kupferberg said the acquisition will help expand PayPal’s footprint in Japan.

PayPal has 4.3 million active accounts in Japan and has been focused on cross-border payments, but Paidy will give PayPal a presence in the domestic payments market as well, the analyst said. 

Related Link: If You Invested $1,000 In PayPal Stock One Year Ago, Here's How Much You'd Have Now

Japan is the third-largest e-commerce market in the world and generates an annual online shopping volume of about $200 billion, he said. More than 70% of Japanese consumers reportedly shop online.

Yet Kupferberg said about 70% of all Japanese purchases are still made with cash, which presents a major opportunity for PayPal.

Paidy's Impressive Growth Numbers: Paidy’s network consists of more than 700,000 merchants and 6 million consumers, and its payment solutions are accepted at all of the top 10 online Japanese marketplaces, including Amazon.com, Inc. AMZN and Rakuten.

Paidy reportedly generates $1.5 billion in annualized payment volumes, and Kupferberg said he believes payment volumes are growing at a more than 100% annual rate.

“We are bullish on the Paidy transaction, as it establishes PYPL solidly in the domestic Japanese market, while also increasing PYPL’s exposure to the high-growth BNPL space, which is seeing increased demand from both consumers and merchants,” the analyst said. 

Bank of America has a Buy rating and $323 price target for PayPal stock.

Benzinga’s Take: The market didn’t exactly welcome the Paidy buyout news.

PayPal shares are down 2.1% in the last two days, but much of that weakness may have come on reports that Amazon may be developing an in-house point-of-sale solution for in-store and online purchases.