- Third Point likens PayPal to best-in-class online platforms like Netflix and Amazon
- Forecasts share increase of 40%
- PayPal “appreciates the investment”
Third Point, the New York-based hedge fund founded by US investor and hedge fund manager Daniel Loeb, has taken a significant stake in international money transfers colossus PayPal, the London Financial Times and CNBC report.
The new investor is forecasting that PayPal shares will soar by 40% within the next year-and-a-half. In a second quarter letter announcing the development to investors, Daniel Loeb stated: “We see parallels between PayPal and other best-in-class internet platforms like Netflix and Amazon: high and rising market share, untapped pricing power, and significant margin expansion potential.”
Currently, shares in the world famous cross-border payments platform are trading at USD $88. If Third Point is correct in its projections, that’s set to surge to $125.
There was a hint of a steel fist beneath the velvet glove in Loeb’s remarks. Giving PayPal’s Chief Executive Dan Schulman what looked like a strong vote of confidence by describing him as “excellent”, Loeb also pointedly mentioned that Third Point expects the online money transfer leviathan to crack down on costs.
The fund believes that PayPal must improve its operating margins and should be aiming to cut expenses across a range of areas, among them customer service, credit servicing and collections, and information technology.
As matters stand, there is no publicly available disclosure of the scale of the stake purchase, although it’s probably fair to infer from the instructions being meted out that it’s fairly sizeable. Third Point has drawn attention to the fact that PayPal’s operating margins are noticeably lower than a number of its competitors, including Visa and Mastercard – a hint that it expects something to be done about this.
For its part, PayPal, which will publish its earnings this week, was politely upbeat, stating that it “appreciates the investment in our company”.
In 2015, the remittance giant spun off from eBay with a strong net cash position that it has since deployed on a veritable spending spree, expanding aggressively through multiple acquisitions. Both Schulman and the company’s CFO John Rainey are on record as saying that the firm intends to spend USD $3bn a year on new acquisitions, in what appears to be a bid to penetrate all corners of the international money transfers market.
Financially, things appear to be going PayPal’s way. As broader investor interest in remittance services grows, so too have PayPal’s shares, climbing by 20% so far this year. Deal-making in the online money transfer sector has reached a record high; earlier this year, in a five week period, PayPal alone acquired four new companies.
From its origins as a method of purchasing items from eBay, PayPal has been steadily expanding its offerings, extending to mobile transactions and partnering with other remittance leviathans like Mastercard while expanding Venmo, its app for enabling people to send money home to friends and family, for use in stores. In Q1 of this year, transactions through Venmo made a year-on-year leap of 80% to hit USD $12bn.
If you’d like to read more about PayPal, please read this article.
