PayPal Holdings Inc
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Information Technology : IT Services | Large Cap Growth
Company profile

PayPal Holdings, Inc. is a technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants. The Company's combined payment solutions, including its PayPal, PayPal Credit, Braintree, Venmo, Xoom, iZettle, and Hyperwallet products and services, comprise its Payments Platform. It operates a two-sided network that links its customers around the globe to facilitate the processing of payment transactions, allowing it to connect merchants and consumers. The Company allows its customers to use their account for both purchase and paying for goods, as well as to transfer and withdraw funds. It enables consumers to exchange funds with merchants using funding sources, which include bank account, PayPal account balance, PayPal Credit account, credit and debit card or other stored value products. The Company also offers consumers person-to-person (P2P) payment solutions through its PayPal Website and mobile application, Venmo and Xoom.


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PayPal 'now risks getting disrupted' by competitors, analyst says in downgrade

9:40 am ET November 17, 2021 (MarketWatch)

By Emily Bary

PayPal faces competitive pressures from Shopify, BNPL services, and elsewhere, according to Bernstein

PayPal Holdings Inc. has a reputation for disrupting the payments ecosystem, but it "now risks getting disrupted" itself, according to an analyst.

Bernstein's Harshita Rawat downgraded the stock to market perform from outperform Wednesday, citing various competitive pressures for the digital payments giant. Shares of PayPal (PYPL) are off 2.5% in premarket trading.

Rawat worries about the "increasing aggregation" of e-commerce activity on large platforms like Inc. (AMZN) and Shopify Inc. (SHOP.T), which she estimates are together responsible for about 32% of U.S. commerce.

"Amazon currently doesn't accept PayPal and just agreed to accept Venmo starting in 2022," she wrote. "Shopify has ambitions of creating its own payments business and has been pushing its merchants aggressively to convert to Shopify payments platform (and also towards the Shop Pay button)."

Smaller merchants "are PayPal's bread and butter, and Shopify's meteoric rise and push towards its own payments platform is particularly problematic," Rawat continued. PayPal's transaction economics are better with smaller businesses than with very large ones, she argued. Shopify Inc. represents an "unassailable competitor" when it comes to the small-business demographic, in her view.

Rawat is also concerned that PayPal's market-share gains will slow. The company has typically won share at the expense of manual card entry onto a website, but fewer consumers are entering their card information this way, she said, meaning there is less available land to grab there. She estimates that manual card entry now accounts for about 20% of e-commerce checkout, down from roughly 33% four years back.

More broadly, she thinks that share gains could slow "by a thousand cuts" thanks to the rise of a number of technologies that separately eat away at opportunities for PayPal. These include the growth of buy-now pay-later (BNPL) services, the ability to auto-fill credit-card information on some web browsers, and the threat of Apple Pay as ever more commerce shifts online.

"It is an understatement to say that the payments landscape is rapidly evolving with many powerful trends emerging," Rawat said in her note to clients. "While PayPal is actively investing and evolving, it simply has more turf to defend versus peers in our view."

Rawat acknowledged that her thesis could prove incorrect if PayPal delivers upbeat surprises with its efforts to drive more revenue from its Venmo app and its "superapp" redesign that focuses on features beyond just payments.

"After years of false starts, we believe Venmo is finally on the cusp of getting monetized," she wrote. While Rawat has "historically been skeptical of aggressive monetization estimates for Venmo," she feels more "constructive" now. "Venmo monetization is now less about following the PayPal playbook and more about following Cash App's journey," she wrote, referencing Square Inc.'s (SQ) mobile wallet.

Shares of PayPal have declined 20% over the past three months as the S&P 500 has risen about 6%.

-Emily Bary


(END) Dow Jones Newswires

November 17, 2021 09:40 ET (14:40 GMT)

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