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PayPal vs. Shopify: Which Digital Payments Stock is a Better Buy?
Stock Analysis & Ideas

PayPal vs. Shopify: Which Digital Payments Stock is a Better Buy?

Digital payments are here to stay, as a result of growing internet penetration, a higher adoption rate of smartphones, rising e-commerce sales, and increasing government initiatives to digitize payments.

However, the presence of independent digital payments companies like PayPal at checkout on online marketplaces is also being threatened by e-commerce companies who are looking at developing their own payments platforms, either organically or through acquisitions.

Using the TipRanks stock comparison tool, we will compare the two companies, PayPal, and Shopify, and examine how Wall Street analysts feel about these stocks.

PayPal Holdings (PYPL)

Yesterday, shares of PayPal were down around 5% after Reuters reported, citing unknown sources, that the company could snap up Pinterest (PINS), a social media company, in a deal worth $45 billion. Shares of Pinterest rose 12.7% on the news.

The report also said that this could possibly be a “mostly” stock deal in which PYPL has offered to pay $70 per share.

Mizuho Securities analyst Dan Dolev had a mixed take on the news with “some positives and some questions.” The analyst is bullish with a Buy rating and a price target of $375 (45.2% upside) on the stock.

According to Dolev, this potential acquisition would result in PYPL having “an anchor in internet and/or ecommerce and social media, which helps diversify away from standard online checkout.” Pinterest is a social media site that enables users to pin interesting ideas on a digital pinboard.

This is also echoed by the Reuters report, which stated that this potential acquisition “would allow PayPal to capture more of that e-commerce growth and diversify its income though advertising revenue.”

Moreover, the analyst expects that PYPL “could potentially add more shopping capabilities, and boost its e-commerce presence, potentially competing with other large online retailers like AMZN or SHOP.”

PayPal has a significant presence on online marketplaces like eBay (EBAY). PayPal was spun-off by eBay in 2015, but until last year, purchases on eBay were still being processed through PayPal. This deal is likely to end this year, following the development of eBay’s own payment platform, Managed Payments. (See Analysts’ top stocks on TipRanks)

Interestingly, the company’s management had pointed out on its Q2 earnings call that many sellers were selling on multiple marketplaces, implying that Paypal would be shielded from the impact of eBay’s actions. This was in response to a question regarding e-commerce volumes being aggregated into larger platforms.

Furthermore, John Rainey, the company’s CFO and EVP, Global Customer Operations stated, “We even see that with eBay, where you would expect some decline or some churn in merchants as eBay moves some of this away, but the fact that we still maintain a 60% share of checkout there, and then many of these sellers are selling on other marketplaces.”

A significant presence on eCommerce sites is important for digital payments companies like PayPal for its transaction take rate. Transaction take rate is the percentage of transaction value facilitated by the company that PayPal can keep as revenue.

Nonetheless, analyst Dolev also expressed some concerns about Paypal, particularly regarding this possible acquisition. These include “an unknown degree of user overlap, rapid deceleration in Pinterest user growth in recent quarters, and the deal potentially signaling that PYPL’s organic net new adds in 2H may be weaker than hoped.”

The company expects net new additions between 52 million and 55 million in FY21. PayPal is expected to report its Q3 earnings on November 8.

Turning to the rest of the Street, Wall Street analysts are bullish about PayPal Holdings, with a Strong Buy consensus rating, based on 21 Buys and 3 Holds.

The average PayPal price target of $335.45 implies 29.8% upside potential from current levels.

Shopify (SHOP)

Shopify is a provider of essential Internet infrastructure for e-commerce that offers services through subscription and merchant solutions. The company mainly competes with PayPal (PYPL) through its payment processing services, like Shopify Payments.

In Q2, the company’s revenues rose 57% year-over-year to $1.12 billion. Shopify recorded a net profit of $879.1 million.

SHOP’s Gross Merchandise Value (GMV) jumped 40% year-over-year to $42.2 billion. Roth Capital analyst Darren Aftahi continues to expect the company’s GMV to grow at the same rate in Q3.

The analyst is bullish with a Buy rating and a price target of $1,800 (21% upside) on the stock.

Even the company stated in its Q2 earnings release that it expects GMV to rise “from existing merchants, new merchants joining the platform, and expanded adoption of Shopify’s growing menu of merchant solutions.” (See Top Smart Score stocks on TipRanks)

The analyst’s channel checks indicated that 87% of merchants who responded used Shopify Payments while 51% used Shopify’s shipping solutions. Interestingly, many Shopify merchants use social media sites for commerce, such as Facebook (FB) Shops, Instagram or Pinterest (PINS), and are “seeing positive impact (conversion rates) from adding this integration.”

Aftahi also indicated that the incremental spending of consumers on non-store retail in the United States has slowed down modestly. Yet the analyst is of the opinion that SHOP “still remains the best-positioned company to capture that growth by facilitating more and more businesses that have increased their focus on online sales, both large and small and remains the best ‘plug and play’ offering on the market.”

The analyst’s bullishness on SHOP is reflected in the company’s website traffic trends. Using the newly added TipRanks’ Website Traffic tool, which analyzes website traffic volume data provided by Semrush (SEMR), we can see that in Q3, total unique visitors on all devices are up by 37.8% year-over-year to 3 million.

Turning to the rest of the Street, Wall Street analysts are cautiously optimistic about Shopify, with a Moderate Buy consensus rating, based on 14 Buys and 10 Holds.

The average Shopify price target of $1,714.05 implies 15.2% upside potential from current levels.

Bottom Line

Analysts are bullish about PYPL and cautiously optimistic about Shopify. Based on the upside potential over the next 12 months, PYPL does seem to be a better Buy.

Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article​.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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