Axiom analyst Victor Anthony conveys mixed ratings on PayPal Holdings Inc (NASDAQ:PYPL) and eBay Inc (NASDAQ:EBAY) as one company maintains its position though diversification of products, while the other company is looking to shrink equity and lever the balance sheet.
PayPal Holdings Inc
This morning, Anthony maintained a Hold rating for PayPal and reiterated a price target of $36. Anthony believes that while PayPal’s model can withstand competition, the shares are already “fully valued.” PayPal’s 4Q report was in line with consensus expectations and users grew by 6.6 million, including 1.6 million additions coming from Xoom. Additionally, Anthony notes that PayPal bought back $2 billion of its shares to “offset dilution.”
PayPal, according to Anthony, is “resilient in the face of competitions…with the biggest threats coming from Apple, Google, Samsung, Facebook, Square, and Stripe.” He believes increased competition from these companies can significantly impact PayPal’s revenues, profit, and free cash flow. PayPal has been able to weather the competition, however, by “supplementing its core web payments platform” with additional products like Venmo, Braintree, Xoom, Paydiant, PayPal-instore, One-Touch, PayPal Credit, and PayPal working capital. Despite the expansion, Anthony believes the growth has put pressure on take rates and is “limiting meaningful margin expansion.”
Based on 15 analysts who have rated the stock polled by TipRanks (in the past 3 months), 13 rate PayPal a Buy, one rates the stock a Hold, and one rates the stock a Sell. With a potential of 21.4% upside, the average price target of the stock is $41.64.
Anthony is bullish on eBay as the company has shown “core stabilization, a high free cash flow yield, and share purchases.” eBay’s 4Q results, according to Anthony, were in line with expectations, posting overall gross merchandise volume of 5% YoY ex-fx, core marketplace gross marketplace growth up 4% YoY, and stub hub gross marketplace growth up 30%. Despite positive growth, Anthony is reducing 2016 revenue estimate by 3.6% and reducing Non-GAAP EPS by 6% to “reflect company guidance.”
Moving forward, Anthony expects eBay to face challenges including “below industry growth, SEO challenges, and sluggish sold items growth.” However, he believes that “the structured data update is progressing and should help with SEO, and active user net additions continue to increase.” Additionally, management is shrinking equity ($550 million in 4Q15) and Anthony expects management the lever the balance sheet (2x gross vs. 3.5x max) and “aggressively shrink the equity base.”
In light of the report, Anthony maintains a Buy rating on the stock but reduces his price target from $34 to $30. The reduction of the price target is meant to reflect slower EPS growth than originally projected and the current market sentiment.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Victor Anthony has a yearly average return of 6.4% and a 50% success rate. Anthony is ranked #261 out of 3671 analysts.