Morgan Stanley Affirms PayPal’s Dominance in Online Commerce
Morgan Stanley analyst James Faucette believes that PayPal will remain the leader in the online payment sector. The California-based company dominates the industry as they service 79 percent of the top 500 online merchants. In contrast, only four of the top 500 eCommerce sites accept bitcoin as a payment option.
“We expect PayPal to continue growing at or above the pace of eCommerce, and the network benefit of being a leader among merchants should continue to drive engagement higher,”
After the release of the Morgan Stanley report, PayPal Holdings Inc’s shares increased 3.7 percent on Monday morning.
PayPal Continues to Dominate the Online Payment Industry
Faucette believes that PayPal’s dominance will likely continue in the long-term due to its existing market share in contrast to its competitors. “With PayPal maintaining its massive acceptance lead among leading e-commerce websites versus other digital wallets, competitive concerns have dissipated, and the company appears well-positioned to disproportionately benefit from e-commerce tailwinds,” said Faucette.
According to an interview with The Street, PayPal CEO Dan Schulman expressed his skeptical opinion about bitcoin’s potential as a legitimate means of payment.
“I think right now, and we’re seeing this maybe more than ever, the volatility of the cryptocurrency makes it actually unsuitable to be a real currency that retailers can accept,” … “Because retailers have very narrow margins and when you have a bitcoin bouncing up and down by 15 percent over a couple weeks period, that can be the difference between profits and losing money on every sale.”
Furthermore, Director of Equity Research at Buckingham Chris Brendler noted that “it’s just not an efficient way to transfer value. It’s not a consumer-friendly process, and it’s not a merchant-friendly process.” Moshe Katri, the Managing Director at Wedbush Securities, agrees. Bitcoin would not have much impact on PayPal until the wider public adopts the technology.
While the PayPal CEO is not concerned about the presence of cryptocurrencies, Schulman sees blockchain as a technology that can enable innovation. “I think you need to separate out the bitcoin or cryptocurrencies as currencies and the underlying protocol called blockchain,” said Schulman. It isn’t a surprise considering PayPal recently filed a patent published on March 1, 2018, by the US Patent and Trademark Office that uses blockchain technology.
PayPal’s Strength in the Stock Exchange
In the last five years, PayPal Holdings Inc. had an impressive earnings-per-share growth record of 20.50 percent. The company’s shares grew nearly 74 percent in 2017 alone, while the Bitcoin Investment Trust grew 680.5 percent over the same period. At PayPal’s latest closing price of $76.51, it has a price-to-book ratio of 5.78, with the industry average is at 7.53.
PayPal’s share price has grown by 0.17 percent in the last three months. The California-based company is expected to continue leveraging the network effect of increasing its market share.
The Morgan Stanley analyst, therefore, remains confident in PayPal and does not view bitcoin as a serious alternative for online payment options competing with the likes of Visa, Mastercard, and PayPal. Faucette however, notes that cryptocurrencies like dash and litecoin could be a more suitable form of payment in the future.
Nvidia Stock Increases after Morgan Stanley Mentions Cryptocurrency Weakness
According to MarketWatch, Nvidia, the Santa Clara-based company that designs graphic processing units (GPU) for the gaming and cryptocurrency industry also experienced an increase in share prices after a positive comment from Morgan Stanley analysts.
The analysts upgraded the stock to “overweight” from “equal” weight and were optimistic about the artificial intelligence market. “It’s increasingly clear that all roads lead back to NVIDIA as the most direct beneficiary of trends in machine learning,” said one of the Morgan Stanley analysts. The analysis predicts a $258 price on Nvidia stock which is a little higher than the average price of $250.89 from 33 analysts tracked by FactSet.