PayPal Holdings Inc. (PYPL) soared on Friday after beating third-quarter earnings expectations Thursday after the close.
The stock finished the day up 9.4% to $84.78 on Friday, closing the week with a 7.3% gain for shareholders.
The San Jose-based payment processing company was sent on its run after it bested analyst expectations for earnings per share, reporting $0.58 against expected EPS of $0.54, and posted $3.68 billion in revenue, which was above the $3.66 billion consensus forecast among analysts.
The results are caused a number of analysts along the Street to raise their targets for the surging stock, which is a holding of Jim Cramer's Action Alerts PLUS charitable trust.
Value in Venmo
"I'll Venmo you."
The phrase is becoming the payment equivalent of "Google it," which is money to the ears of PayPal investors.
"I'm especially pleased with the strong overall momentum surrounding Venmo," PayPal CEO David Schulman said. "For the third quarter in a row, Venmo posted yet again another record for net new actives."
Total payment volume on the platform is now $16.7 billion, which represents growth of 78% year over year.
Schulman said monetization of the popular platform, while still in the formative stages, is at a "tipping point." He said that as of the last quarter about one in four Venmo users had made some kind of monetizable action.
Analysts are bullish on Venmo, which is helping them justify boosting their price targets.
"We are upgrading our recommendation on PayPal Holdings to Buy from Neutral with a price target of $95," BTIG analyst Mark Palmer said in a note on Friday morning. "Venmo monetization progress moves us off the sideline."
The early progress also enticed already-bullish analysts to increase their growth targets for the payment company.
"Venmo remains a bright spot," Stifel analyst Scott Devitt said in his note on Friday morning. "We believe PayPal's ongoing partnership efforts, potential monetization upside from Venmo, and growth-focused M&A should drive further market share gains and expand the company's total addressable market."
Devitt keyed in on these catalysts as signs that investors could be cashing in even more with PayPal in the future.
"We reiterate our Buy rating and are raising our price target to $108 from $102 previously," he said.
To be sure, The Street's technical analysts note that there is some concern on the charts as the stock climbs.
"PYPL has recovered nicely after earnings, but there is a pretty big hurdle to a continued rally it would need to clear if the rally is going to continue!" Trading Advisor and Technical Analyst Carolyn Boroden wrote in her technical take.
Luckily, the stock did close over the 200-day moving average, assuaging some anxiety over the technical that were highlighted by Real Money's technical analyst Bruce Kamich.
Squaring Up with Square
Another hurdle for the company is its move into the brick and mortar battle with Square (SQ) , which has been an insurgent in the payment space, trading at a multiple over 100 on its growth expectations.
SunTrust Robinson Humphrey analyst Andrew Jeffrey added to the hope by raising his price target for Square based upon the remaining growth drivers that remain in nascent stages.
"Our model reflects momentum in Square Cash, Instant Deposit and the emerging Restaurants solution," he wrote on Wednesday, outlining opportunities. "We also note EventBrite (EB) will provide a notable GPV boost."
He added that while the recent management change at the CFO position at Square is cause for concern at the young company, the momentum is enough to raise a price target
"These tailwinds would otherwise by enough to improve SQ's risk/reward, in our opinion," he explained. "We contend investors should demand a more forgiving valuation."
Nonetheless, he maintained his "Hold" rating on the stock based upon limited available market and turmoil at the top ranks.
The total available market for Square's expansion is further shrunk in the face of iZettle, PayPal's answer to Square's insurgence.
In attempting to curb the risk from Square CEO Jack Dorsey's upstart payment platform, PayPal has looked abroad to contain the threat.
The company's recently closed deal to acquire iZettle, a Sweden-based merchant payments platform, offers another advantage over Square in terms of global reach.
"Hailed as the European rival to Square, iZettle is a leading small business commerce platform in Europe and Latin America that offers in-store capabilities, including point-of-sale, merchant tools and an easy and automated on-boarding process," the Action Alerts Team wrote in their analysis of the transaction announcement earlier this year.
The acquisition, which closed in late September, should only add to PayPal's already breakneck pace of customer acquisition.
"PayPal just bought Square's rival in Europe at a cheaper cost," the AAP team noted on the acquisition's announcement. "iZettle's international ties accelerate PayPal's global expansion."
On paper, it would appear that PayPal has a commanding lead and will continue to assault Square's burgeoning market share.
Yet, some experts certainly see room for coexistence between the two payment leaders.
The two payment processors will have time to grow user bases before turning their swords on each other, according to Shawn Cruz, Manager of Trader Product and Business Strategy at TD Ameritrade.
"At this point, it is an emerging industry," he explained. "The two big companies are focused on growing volume, it will be a while before the industry matures to the point that they really begin to compete heavily for market share. It's not like the pie is already thick."
Divergent Paths for Partners
PayPal does not seem to have taken the break-up with eBay Inc. (EBAY) as hard as eBay has.
While PayPal surges, the bidding platform company's shares are sagging. PayPal executives said a move away from PayPal is a net negative for their former partner.
Schulman referenced a market research report put out by Ipsos that showed 54% of consumers on eBay were more willing to buy a product when a merchant accepted PayPal as a payment option. Essentially, eBay needed PayPal a lot more than PayPal needed eBay.
"Imagine if almost 60% of them would abandon a sale because PayPal Checkout wasn't available," Schulman mused.
To be sure, Schulman noted that the companies still have a five-year agreement in place for PayPal to be featured as an option on intermediated payments. Schulman said he hopes the two will remain "strategic partners" despite eBay's move toward managing payments away from the PayPal platform.
American Express Co. (AXP) has been eager to fill the void that eBay has created by pulling away from PayPal and has taken a big step in that direction.
"Today I'm very pleased to announce that we've signed a multifaceted partnership agreement with American Express," Schulman said. "Over the next several quarters PayPal will have enhanced access to American Express as a payment option in our wallet."
The Action Alerts PLUS team explained that PayPal is actually stronger given its ability to form these kinds of partnerships unencumbered by the long-term relationship with eBay.
"This new deal follows last week's announcement of a partnership with Walmart Inc. (WMT) that will allow customers to withdraw funds from their accounts at Walmart stores for a $3 fee," the Action Alerts PLUS team noted. "PayPal's ability to form new, exciting partnerships like these is why we believe its upcoming severed ties with eBay is actually a positive for the platform and not a negative like it is viewed."
With options action heating up and a run still foreseeable, analysts and investors are bullish on PayPal's ability to push forward in growth.
"Overall, this is what we wanted to see," the AAP team said. "The PayPal trends remain solid and the newly announced partnerships increase the value proposition of the platform, making it more of an indelible product in today's society."