Morgan Stanley Recommends PayPal On Any Weakness Related To Pricing, Execution Delays

PayPal Holdings Inc (NASDAQ: PYPL) demonstrated positive operational leverage in the second quarter, despite weaker headline numbers, according to Morgan Stanley.

The Analyst

Morgan Stanley’s James Faucette maintained an Overweight rating on PayPal with a price target of $129.

The Thesis

PayPal’s operation metrics in the second quarter were better than expected and most usage related KPIs were strong, Faucette said in the note.

The company’s total payment volume came in at $172.4 billion, ahead of Morgan Stanley’s estimate of $171.8 billion. TPV growth ex-FX accelerated to 26%, from 25% in the previous quarter, the analyst noted.

Growth in net new active accounts also accelerated to 17% from 15% in the first quarter, while customer engagement and usage continued to improve in the second quarter.

However, transaction revenues missed expectations, having been impacted by growth in the peer-to-peer space, weakness in eBay and unfavorable FX. PayPal reported adjusted revenues of $4.305 billion, missing Morgan Stanley’s estimate of $4.337 billion.

Pricing and integration delays are expected to impact the company’s revenue growth in 2019. Faucette considers any weakness in PayPal’s stock due to slightly weaker revenue growth in the near term as a buying opportunity.

He expects the company to “flex its operating leverage” and generate faster margin expansion to offset the possible near-term slowdown in revenues. He added that PayPal’s TPV is likely to continue to grow “at or above the rate of eCommerce (exAmazon)” in the longer term, given the company’s investment in its platform and its efforts to drive merchant and consumer adoption.

Price Action

Shares of PayPal were down 6.08% to $113.92 Thursday morning.

Related Links:

25 Stocks Moving In Thursday's Pre-Market Session

A Peek Into The Markets: US Stock Futures Mixed Ahead Of Earnings