PayPal Holdings Inc. has spent months teasing its openness to a big acquisition that could either give it new capabilities or enhance its geographic presence. On Thursday, the company announced its intent to purchase iZettle, an asset it said would help it do both.
Shares of acquiring companies often fall upon news of a deal, but PayPal’s
PYPL, +2.30%
stock was up 3% in Friday morning trading after the iZettle deal was officially announced. Shares closed up 1.8% in Thursday trading after rumors of the $2.2 billion deal leaked.
Nonetheless, the acquisition of iZettle, which enables small businesses in Europe and Latin America to accept card-based payments, sparked debate among Wall Street analysts. “We do not believe this was the acquisition shareholders were anticipating, the price paid appears expensive, and acquiring iZettle does not alter how smaller merchants perceive PayPal as a tender type given the plethora of options already available for purchases in-store,” wrote Mizuho analyst Thomas McCrohan, who rates PayPal’s stock at neutral with a $72 price target.
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Others were more optimistic, including Credit Suisse analyst Paul Condra, who upped his price target to $93 from $85. “Whereas the company could have made one large acquisition, such as a legacy payment processor to gain scale in online payments, we view the iZettle deal as confirmation that PayPal is likely to take a balanced yet optionality-rich approach to expanding its network via the acquisition of fintech disrupters and innovators.”
PayPal is becoming “the key fintech consolidator,” Condra wrote. He has an outperform rating on the stock.
Jefferies analyst Ramsey El-Assal also thought the deal makes sense. “We see iZettle as another step in PayPal’s long journey to offer an in-store/physical POS solution,” he wrote. “We generally believe digital players such as PayPal will increasingly need to offer merchants an omnichannel solution, and iZettle should help with this effort.” He has a buy rating and $98 price target on the stock.
Also of discussion among analysts was the question of how PayPal’s deal will affect the competitive landscape, as other companies offer payment-processing services to small businesses.
“While we lack detailed information at this point, we see iZettle as more of an international play for PayPal, rather than near-term cross-sell opportunity in North America where incumbents such as Square Inc.
SQ, -0.05%
and First Data Corp.’s
FDC, -0.70%
Clover already have a significant head start in the SMB market,” El-Assal wrote. Square is also trying to expand internationally, including in the U.K.
Shares of Square Inc. were up 0.6% in Friday morning trading after falling more than 3% Thursday.
See also: Square says Weebly acquisition addresses its ‘top priority’
Baird analyst David Koning is skeptical that the deal will be much of a threat to big legacy merchant acquirers either. “We believe this is largely for smaller merchants, and on average, those smaller than merchants of Global Payments Inc.
GPN, -0.50%
Worldpay Inc.
WP, -0.34%
Total Systems Services Inc.
TSS, +0.05%
and First Data,” wrote Koning, who has outperform ratings on those four stocks.
“We consider it possible that it moves to the U.S., but that merchants served by vertical-based software (which generally partners with Global Payments/Worldpay and somewhat with Total Systems/FDC) are unlikely to move to software/payments that isn’t likely as robust for their vertical,” he said.
PayPal shares are up 66% over the past 12 months, while the S&P 500
SPX, -0.19%
has gained 15%.
Source : MTV
