What does the future hold for Alibaba Group Holding Ltd (NYSE:BABA) and Paypal Holdings Inc (NASDAQ:PYPL)? Analysts weigh in on the two companies, providing commentary on growth outlets and margin estimates for both. Let’s take a closer look:

Alibaba Group Holding Ltd

Vivian Hao of J.P. Morgan came out yesterday providing updates on Alibaba’s sales, Taobao, and the company’s margins.

The analyst highlights that Alibaba achieved GMV, or gross merchandise volume, of 3 trillion RMB, in-line with the analyst’s estimates, marking a 20% year-over-year increase. However, due to “limited visibility on China macro environment,” the analyst expects “continued pressure” on Alibaba’s GMV. Hao slightly lowers her GMV estimates from a 21.5% year-over-year growth to 20%.

Hao remains bullish on Taobao, Alibaba’s consumer-to-consumer ecommerce platform, noting it will have a “rejuvenation opportunity” thanks to key opinion leaders, or KOLs. The analyst explains, “We believe the rising KOL economy and blooming [consumer-to-business] model could lead to a gentrification of BABA’s platform, esp. Taobao marketplace, with some top KoL merchants (esp. in under-performing lady’s fashion categories) growing from strength to strength.”

The analyst is “positive” on the company’s core ecommerce margins, which she estimates to be 52.3% for 2017. However, Hao expects non-ecommerce margin drag to begin after 2017. She estimates Koubei, Alibaba’s online-to-offline platform, will have a subsidy of 2.6 billion RMB in 2017 while Youku, Alibaba’s video platform, will have EBITDA margins on nearly 49% in 2017.

In light of these developments, Hao reiterates an Overweight rating on Alibaba but lowers her price target slightly from $90 to $88.

According to TipRanks, Vivian Hao has a 61% success rate recommending stocks with a 3% average one-year return per rating. Out of the 15 analysts polled by TipRanks in the last 3 months, 14 are bullish on the stock and 1 is neutral. The average price target between these 15 analysts is $94, marking a 20% potential upside from current levels.Hao stat

Paypal Holdings Inc

As PayPal emerges as a leader in the digital payments segment, James Faucette of Morgan Stanley remains concerned that the company will not be able to preserve its dominance in the long run.

The analyst explains that online commerce is the fastest growing segment, and PayPal’s “nearly 100% exposure to this segment should allow for sustainability of its mid teens revenue growth over a long period of time relative to other payment service providers that are largely exposed to offline commerce.” However, mobile devices are likely to “blur the distinction between offline and online payments” in the long run, which the analyst warns may result in increasing competition for PayPal as it faces Visa, MasterCard, Apple Pay, and Android Pay.

As the PayPal bulls remain optimistic on the long-term growth of the company, Faucette is cautious about the “limits on margin expansion given higher variable costs when compared to payment networks like [Visa] and [MasterCard].” Unlike PayPal bulls, the analyst believes PayPal’s operating margins will “remain roughly stable at 21-22% over the next 3 years particularly as it seems increasingly less likely that there will be substantial incremental shift to [Automatic Clearing House].”

Going forward, Faucette expects PayPal to draw its growth from the continued growth of ecommerce. He continues, “In particular, we see PayPal working to expand the capabilities of its platforms to improve customer engagement in the US and abroad.” Despite these efforts, the analyst remains concerned about growing competition in the area. He assumes coverage of PayPal with an Equal-weight rating and a $40 price target.

According to TipRanks, Faucette has a 73% success rate recommending companies with a +10.4% one-year average return per rating. Out of the analysts who have rated PayPal in the last 3 months, 13 are bullish, 5 are neutral, and 1 is bearish. The average 12-month price target between these 19 analysts is $42, marking a 6% potential upside from current levels.

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