PayPal: Color on Qtr- Shares down on EBAY news, Analysts on Hold (85.32)
- Stifel Research notes, although PYPL's 4Q17 results couldn't have been much better and guidance appears conservative, a significant reduction in the company's future relationship with its largest customer (eBay) has resulted in a sharp sell-off (down ~11% after hours). While firm is tempted to buy the dip given what at first glance looks a severe overreaction (est low to mid-single digit rev/EPS impact in 2021), it is concerned that this could reignite the seemingly forgotten debate around PYPL's competitive positioning, especially relative to the card networks. With PYPL shares still trading at an almost 10% premium to V/MA (27x vs 25x 2019 EPS) even post the after hours sell-off, firm remains on the sidelines as it believes shares will struggle to garner a significant premium to the card networks in light of recent events. As such, maintaining Hold rating although target price increases to $79 (from $77).
- Needham Research notes PayPal delivered a strong quarter to close out 2017 with solid core payment volumes and customer adds driving upside results. PYPL also provided updates on its initiatives around expanding consumer choice and announced that it has signed a term sheet with EBAY to make PYPL available as a way to pay on EBAY through July 2023. While trends in the company's core payment business remains strong, the pending sale of the credit portfolio to Synchrony causes a reduction in valuable spread income in 2H18. While PYPL expects to redeploy this into more lucrative payment initiatives in time, this serves as a near-term headwind. With shares trading at 31x FY19 EPS estimate, firm views the valuation as full. Accordingly, maintain Hold rating.
Shares down approx 8% in pre-market trade; Up 5 points off after hour lows.