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Piper Jaffray Bearish on Paypal Holdings Inc (PYPL) Following Merger

By Howard Kim 

In early September, Paypal Holdings Inc (NASDAQ:PYPL) finalized its merger with Xoom, a digital money transfer provider. The agreement values Xoom at approximately $890 million. The deal is expected to close out in Q4 of this year. In the past three months, PayPal’s shares have lost 8% of their value. On September 24th, Gene Munster from Piper Jaffray weighed in on PayPal.

Munster says Xoom is very small when compared to PayPal, also noting that the synergy potential timeline for the deal is too long to have any impact in on PayPal in the immediate term. As of now, Xoom adds only 2% to PayPal’s revenues.

According to Munster, one of the potential benefits of this acquisition is to cross-sell Xoom to PayPal’s 68 million users in the US along with its vast international user base. The acquisition also provides Xoom with cash flow funding for further expansion.

Munster said, “We believe the percentage of PayPal’s total ~169M users who consistently use international money transfer services is very low, though we acknowledge that a small percentage of converted PayPal users can have a meaningful impact on Xoom’s user count of 1.4M at the end of the 2Q15.”

While Munster acknowledged PayPal’s strengths such as a unique payment network, merchant acquiring capabilities, and recurring revenue, he expressed concern about the company’s value proposition in an omni-channels payment landscape.

Munster maintained an Underweight rating on the stock with a price target of $30. Of the 28 analysts who have recently rated the stock on TipRanks, 19 have rated the stock as a Buy, 6 as a Hold and 3 have recommended to Sell the stock. The average price target, based on the targets set by all 28 analysts, is $42.13, a roughly 24% upside from current levels.

Analyst Gene Muster is a top-ranked analyst with a 62% success rate recommending stocks and a +21.0% average return per rating when measured over a one-year horizon and no benchmark.