Paypal's Long-Term Story Remains In Place Despite eBay Split, Says William Blair

EBay Inc EBAY may have overshadowed Paypal Holdings Inc PYPL's fourth-quarter report, but one Wall Street analyst says the long-term PayPal story is still on track.

The Analyst

William Blair analyst Robert Napoli reiterated an Outperform rating for PayPal stock.

The Thesis

It’s no surprise that PayPal is selling off after eBay announced it would be dumping PayPal as a core processor starting in 2020, Napoli said. But while losing eBay is certainly a setback, PayPal will be just fine, the analyst said. 

“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."

PayPal will remain among the payment options offered to eBay customers, Napoli said. While eBay accounted for 29 percent of total PayPal revenue in 2014, that number steadily declined to just 22 percent in 2016. Napoli estimates it will hit 6 percent by 2021.

PayPal’s eBay revenue has grown in only the mid-single-digits, while non-eBay revenue has growth by an average of 24 percent, the analyst said. PayPal’s eBay processing business represents less than half of its total eBay revenue and is a lower-margin business than its branded checkout service, he said. 

The end of the eBay relationship allows PayPal to potentially work with other leading e-commerce companies that it was prevented from working with under the current agreement, according to William Blair. 

Price Action

PayPal stock was down by 8.43 percent at $78.13 at the time of publication Thursday morning. 

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