Should You Buy The Dip In PayPal?

Paypal Holdings Inc PYPL shares dropped roughly 10% following the company's second-quarter earnings, but Bank of America analyst Jason Kupferberg says investors shouldn’t hesitate to buy the dip in the digital payment giant.

New Venmo Features: Kupferberg said PayPal has rolled out a number of promising new Venmo features in the past year, including the Venmo credit card, cryptocurrency trading and Business Profiles. In addition, PayPal is planning on rolling out features like stock trading, high yield savings accounts and budgeting tools in the future.

“We expect these features will drive continued strong growth in Venmo users, and accelerate growth in average revenue per user (ARPU) over the coming years,” Kupferberg wrote in a note.

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Bank of America is projecting total Venmo users could grow from 76 million in the second quarter to 120 million by 2023. At the same time, the firm is projecting average revenue per user could grow at a 30% compound annual rate over the next two years to reach $19.92. These projections imply Venmo could hit $2.4 billion in revenue by 2023.

PayPal management has said Venmo will reach positive operating income in 2022, but Kupferberg said volume and revenue momentum is much more important for PayPal stock than profits at this point.

Guidance Miss: PayPal shares dropped following its second-quarter revenue and guidance miss, but Kupferberg said investors don’t seem to be appreciating that much of the weakness in the numbers is a result of eBay Inc EBAY intermediation happening faster than expected.

Kupferberg said the recent weakness in PayPal shares is an attractive buying opportunity for long-term investors. Bank of America has a Buy rating and $323 price target for PayPal.

Benzinga’s Take: PayPal's revenue growth may have disappointed the market, but 18.5% growth is still a solid number for a growth stock. PayPal is one of the largest and most successful disruptors in the financial sector, and all its new Venmo features suggest the company intends to continue to innovate and grow.