As Facebook Inc. contends with a deceleration in advertising revenue and PayPal Holdings Inc. looks for more international customers, one analyst argues that the two companies seem like “natural partners.”
PayPal
PYPL, +1.23%
has built a strategy around partnerships since splitting from eBay Inc.
EBAY, -0.07%
in 2015, and the company already has an arrangement with Facebook that features PayPal as a payment option in the Facebook Marketplace. But MoffettNathanson analyst Lisa Ellis wrote Thursday that she expects the companies to “announce a significant expansion of their partnership in the coming months” that could serve as a “game changer” for PayPal—and perhaps for Facebook
FB, +0.35%
as well.
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One possible future arrangement would see PayPal power payments within Facebook’s WhatsApp platform, which the social network is hoping to more seriously monetize. Ellis expects that PayPal would have to take at least some of the payment-processing costs, but she figures that the company would enjoy the “tremendous” benefit of quick new-account growth: “Even if only 5% of the 1.3B WhatsApp users (who do not overlap with PayPal) are converted, PayPal would capture 65M new users – a 28% growth in its base.”
Ellis wrote that PayPal also seems like a logical partner to help facilitate Instagram payments, though she notes that payment processor Stripe Inc. is currently involved to an extent. PayPal could pick up 40 million new active accounts if 5% of Instagram’s user base were to register for PayPal as a result of a hypothetical deal between the two companies. Facebook, meanwhile, would get to “expand its contextual commerce capabilities in Instagram to improve user engagement and conversion,” per Ellis.
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She argued that PayPal might also assume a more active role on the core Facebook “marketplace” platform, especially with its prior eBay agreement near expiration.
“This close partnership could take the form of PayPal taking on the role of the Merchant of Record for the marketplace merchants and/or PayPal powering a suite of [small- and medium-sized business] services such as working capital lending and disbursements for the merchants on the platform,” Ellis wrote. Such a deal would benefit PayPal more in terms of increased revenue opportunities than in regards to potential account growth.
MoffettNathanson has a buy rating on PayPal shares and a neutral rating on Facebook shares. PayPal’s stock has climbed 19% so far this year, while Facebook’s has dropped 18% and the S&P 500
SPX, -0.02%
has fallen 1%.
Source : MTV
