Sell-Side Hikes PayPal Price Targets, Likes Venmo Growth

Wall Street liked Paypal Holdings, Inc. PYPL’s quarterly print, as investors boosted the payment company’s stock to a new 52-week high Thursday and sell-side analysts praised continuing growth in mobile payment platform Venmo. PayPal’s latest quarterly results were within guidance and largely in-line with consensus estimates.

Analysts liked what they saw, particularly in Venmo, the company’s driving story right now. Venmo’s total payment volume grew 73 percent in the first quarter to $21.3 billion, only slightly slower than the 80 percent growth it saw in the previous three months. Overall, PayPal added more than 9 million net new active accounts, with the 17 percent growth also a little better than expected.

The Analysts

• Wells Fargo’s Timothy Willi raised the price target on Paypal from $105 to $120, keeping an Outperform rating on the stock.
• Canaccord Genuity’s Michael Graham kept a Hold rating on the stock, and raised the target price from $88 to $105.
• Guggenheim’s Jeff Cantwell remains Neutral on PayPal.
• Wedbush analyst Moshe Katri is keeping PayPal at Outperform, raising the price target from $110 to $125.
• Raymond James analyst John Davis maintained an Outperform rating on PayPal, boosting the target price from $104 to $116.

The Theses

Wells Fargo's Willi expects sustained momentum through 2020, noting Venmo topped 40 million users higher than the market had expected. He also noted Venmo’s annualized revenue rate is up 50 percent just since the end of the fourth quarter of 2018, going from $200 million to $300 million.

While Graham liked the Venmo growth, he did note PayPal continues to have a headwind with one of its older units, eBay Inc EBAY, where total payment volume was down 3.6 percent year-over-year.

Cantwell remains concerned about headwinds from eBay, though a PayPal payment partnership with Instagram is good news, and could eventually offset eBay sluggishness.

“Meanwhile, the Venmo customer base is much larger than we anticipated, which bodes well from a future monetization perspective,” Cantwell wrote in a note. “Given its size, we believe the question ultimately will become: when will that platform evolve into a significant engine of profitability for the company?”

Katri stays bullish based on in-line results, strong expectations for Venmo, the company’s stated efforts to minimize the effects of eBay contraction, and a pending announcement of a strategic agreement with Latin American e-commerce retailer MercadoLibre Inc MELI, as well as expectations for ongoing “hyper growth” in mobile payments.

“While the quarter was mildly disappointing, underlying trends (active customers plus engagement) were encouraging and Venmo monetization is nicely ahead of our expectations,” Davis wrote to investors.

Price Action

PayPal's stock was up 2.6 percent to $110.03 per share at publication time.

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