Digital payments have transformed the payments industry and have seen increased adoption with rising Internet penetration, a higher adoption rate of smartphones, rising e-commerce sales, and increasing government initiatives to digitize payments.
When it comes to the financial technology market, an IndustryARC report anticipates it to be worth $161.2 billion by 2026.
Let’s compare two digital payments companies, Paysafe (PSFE) and PayPal (PYPL) using the TipRanks stock comparison tool and examine how Wall Street analysts feel about these stocks.
Paysafe
Investors seemed disappointed with Paysafe’s Q3 results. The specialized payments platform saw “softer than expected” revenues fall 1% year-over-year to $353.6 million, while net loss widened from $38.1 million to $147.2 million in Q3.
Philip McHugh, CEO of Paysafe, commented that the decline in revenues was a result of “both market and performance challenges within the digital wallet business.”
The company operates across three business segments including its Digital Wallet segment, eCash Solutions, and Integrated Processing segment.
The digital wallet segment saw revenues decline 15% year-over-year to $83.7 million in Q3. This segment includes brands like NETELLER and Skrill. The company underlined some of the headwinds for the Digital Wallet segment at its Q3 earnings call including softer European sports betting activity, and regulatory headwinds in Germany and the Netherlands. (See Analysts’ Top Stocks on TipRanks)
The weak Q3 results have led to the company lowering its guidance for FY21, and it now expects revenues between $1.47 billion and $1.48 billion from its prior outlook in the range of $1.53 billion to $1.55 billion. Adjusted EBITDA is now anticipated to be between $425 million and $435 million.
Evercore ISI analyst David Togut expects that “2022 will be a transition year with 2023 demonstrating the first potential proof points of improvement in the digital wallet business” for PSFE.
As a result, Togut has cut his FY22 “revenue and adjusted EBITDA [estimate] by $203 million and $146 million, to $1.531 billion and $439 million, respectively.” Moreover, Togut expects that the company will face “structural headwinds from regulatory changes in digital wallets fueling a mid to high teens revenue decline partially offset by inorganic contribution in eCash and double-digit growth in Integrated Processing.”
Considering these challenges, Togut has lowered the stock from a Buy to a Neutral and has drastically cut the price target from $15 to $4 (9.2% downside) on the stock.
Wall Street analysts, however, are cautiously optimistic about the stock with a Moderate Buy rating based on four Buys, and four Holds. The average Paysafe price target of $8.31 implies approximately 88.7% upside potential to current levels.
PayPal
PayPal’s notable payment solutions include PayPal, PayPal Credit, and Venmo.
Third-quarter revenues soared 13% year-over-year to $6.18 billion but below the consensus estimate of $6.23 billion. Adjusted earnings came in at $1.11 per share surpassing consensus estimates of $1.07.
Dan Schulman, PayPal president and CEO, commented on the earnings call that while revenues did show an uptick, they were “slightly below our expectations as back-to-school sales and travel were weaker than we expected.”
More importantly, the company’s total payment volume (TPV) increased 26% year-over-year on a spot currency basis to $310 billion, even as eBay’s (EBAY) TPV fell 45% during Q3 and made up 3% of PYPL’s overall TPV from 7% in the same period a year back.
PayPal had a significant presence on online marketplaces like 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 expected to end this year, following the development of eBay’s own payment platform, Managed Payments
The big news at PYPL’s Q3 earnings was its partnership with Amazon (AMZN), that will enable Amazon’s customers in the United States to pay with Venmo at checkout.
Robert W. Baird analyst Colin Sebastian expects that this tie-up with Amazon will create a “significant volume opportunity” for Amazon. The analyst explained that “the addition of Amazon meaningful expands the ecommerce TAM [total addressable market] for Venmo and should also have a ‘halo effect’ by bringing more attention to Pay with Venmo, driving incremental merchant acceptance and consumer usage.”
While the analyst acknowledged that PYPL’s near-term outlook was “overshadowed by volume headwinds and margin pressures” he still sees “PayPal as uniquely positioned within e-commerce as a solid 20% top-line grower with comparatively strong margins.”
The analyst reiterated his bullish stance on the stock following the Q3 results with a Buy rating but lowered its price target from $325 to $290 (35.7% upside) on the stock.
Wall Street analysts echo Sebastian’s view and are also bullish about the stock, with a Strong Buy rating based on 22 Buys, four Holds, and one Sell. The average PayPal price target of $279.08 implies approximately 30.3% upside potential to current levels.
Bottom Line
While analysts seem to be wait-and-see mode with Paysafe considering the slowdown in the digital wallets business, they are more bullish about PayPal.
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.
