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In a wide-ranging note Monday, a Canaccord analyst stated that despite a tough macro backdrop, they see one clear upcoming positive catalyst on the horizon for PayPal (NASDAQ:PYPL).
That positive catalyst is Pay with Venmo being launched on Amazon (NASDAQ:AMZN), which is expected to occur in the fourth quarter.
“With nearly 40% eCommerce market share in the US, Amazon remains the clear untapped greenfield for PayPal domestically. And beyond the TPV and P&L contributions from Amazon, we cannot but help to contemplate what this could mean for the value of the Venmo platform medium term. With approximately 55 million monthly active users in the US on Venmo, we believe this launch could compel other e-commerce platforms to compete with Amazon for these customers, driving a potentially accelerating cadence of Venmo acceptance by merchants over time,” explained the analyst.
The analyst maintained a Buy rating and a $160 price target on PayPal.
“Venmo on Amazon could add a couple of points of growth to revenue and adj. EPS,” he added.
“In our sensitivity analysis, we are assuming a take rate range of 1.4% to 2.2% and penetration of 2-10%. Clearly, market-share penetration here will take time but this type of analysis can provide an understanding of what the deal could mean on an annualized basis. At the midpoint of this sensitivity analysis, we arrive at a boost to annualized full run rate revenue and non-GAAP EPS growth of ~1.5% and ~3% points, respectively. Of course, the key here will be adoption, and we expect PayPal will support this launch with a marketing effort.”
PayPal shares are down 1.3% Monday.
