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(Photo: pymts.com)

PayPal shares soar, Square makes gains as online transactions grow

(Photo: pymts.com)

Shares of PayPal Holdings Inc rallied as much as 13 per cent, reaching a record high in early trading on Thursday, with analysts zeroing in on the payments company’s strong April trends and growth in electronic transactions across the board.

Square Inc rose as much as 8.6 per cent to the highest since early March, as it benefited from some of that, too. But worries about credit and its smalland medium-sized business market factored in as well.

Both are outperforming the market so far this year, with PayPal soaring 34 per cent and Square up 19 per cent, even as the S&P 500 has shed 11 per cent, stung by the economic impacts of the Covid-19 pandemic.

Here’s a sample of the latest commentary:

Morgan Stanley’s James Faucette

For PayPal, “April really took off,” Faucette wrote in a note, “as consumers settled into modified behaviours.”

Surging online activity and changes in behaviour mean there’s a chance the firm can boost offline acceptance, which is key to maintaining its “pole position in the development of digital wallet services”, he said. That’s along with a big jump in new account activations, which quickened the pace of existing business growth.

On the other hand, the downturn “makes Square look like a bank”, Faucette said, with loss reserves wiping out profit. Plus, there’s a looming “bank-like fall in loans to merchant borrowers” while Cash App, which offers consumers bank-like services, had good results. He added that the Paycheck Protection Program gave Square Capital revenues “minor relief”.

Faucette rates PayPal shares overweight and Square equal-weight.

MoffettNathanson, Lisa Ellis

Partner at MoffettNathanson Lisa Ellis rates PayPal shares as a buy. (Photo: Bloomberg)

Ellis flagged PayPal’s disclosure that May 1 was the company’s single-largest volume day in its history, topping last Black Friday and Cyber Monday, while April core checkout button volumes rose more 43 per cent, more than double pre-crisis growth rates.

“In a sea of quite depressing payments results,” with Visa Inc and Mastercard Inc global card volumes trending down 20 per cent to 25 per cent through April, “God Bless the PayPal Checkout Button,” she said. “How goes the Checkout Button, goes PayPal.” She rates shares buy, with a target price of US$170.

Compass Point, Michael Del Grosso

“[PayPal’s] April update was all that mattered and it didn’t disappoint,” Del Grosso wrote. Also, management commentary pointing to “durable” consumer shifts to online spending bolstered his view that the “current crisis only accelerated the longer-term, secular, consumer shift to e-commerce”.

Del Gross sees PayPal as a “longer-term winner post-Covid.”

However, Square’s expenses were materially higher than forecast due to a higher loan loss provision, and April’s worse-than-expected gross payment volume update signaled “material deceleration.” Plus, April’s Cash App new user growth may be “transitory once the effects of stimulus payments wane,” he added.

He rates PayPal shares buy, with a target of $150; rates Square sell, with a target of $50.

Guggenheim, Jeff Cantwell

“Payment flows are shifting to e-commerce and digital as the world economy reorganises in response to COVID-19,” Cantwell wrote, leaving PayPal “extremely well-positioned to grow TPV rapidly.”

A customer uses a Square Inc device to make a payment in San Francisco, California, USA, on Tuesday, March 27, 2018. The mobile payment market is anticipated to grow reaching a market value of US$4.57 trillion by 2023, according to data provided by Allied Market Research (AMR). (Photo: Bloomberg)

Bullish developments included adding a record number of net new active users in April at 7.4 million and record levels of customer engagement on the platform. Cantwell raised his PayPal price target from US$123 to US$152 and rates shares buy.

KBW, Sanjay Sakhrani

“We believe the payments industry is a beneficiary of the post-COVID-19 changes society will implement, which will include a diminishing dependence on cash and check usage,” Sakhrani wrote. “Within that paradigm, PayPal should be a disproportionate beneficiary.” He rates shares outperform and lifted his price target from US$120 to US$152.

— Bloomberg