When we last looked at PYPL, the company was coasting along comfortably on its rapid series of acquisitions. Now, share prices have deflated (down more than 12% in the last three months), and despite having additional acquisitions in the works, the company’s outlook has somewhat dimmed.
PYPL recently announced it will acquire digital money-transfer company Xoom Corporation (XOOM) in a deal that’s expected to close in Q4.
We made a decent profit when I recommended the stock in my Inner Circle service back in 2013, but right now, I can’t say I’m a fan of XOOM from a consumer perspective. They offer a solid service in terms of person-to-person transfers, but their refusal to handle commercial payments has limited their options greatly and has done the company more harm than good.
What’s the Goal for PYPL Stock?
As far as I can see, PYPL is just buying transaction volumes and, in theory, a broader international presence. But in reality, they already had a substantial overseas footprint — and with an $890 million price tag on the XOOM deal, it seems they’re paying too much for the moves.
If I were to hazard a guess, PYPL management recognized they don’t have the chops to survive as a standalone business, and so are trying to bolt together something that can become more independently sustainable.
To me as an investor, that prospect is rarely inviting. It brings to mind the first-generation dot-com companies desperate to accumulate critical mass before the money ran out.
I won’t say PYPL stock is reiterating that trend, but a couple of unanswered questions are raising red flags for me. First, what does this acquisition do that investing in the existing business doesn’t? And second, how do the new assets unlock strategic opportunities that weren’t there before?
The mobile payment space is getting complicated and crowded. PYPL had a shot at becoming an alternative to Visa (V) and Moelis & Company (MC) a few years ago when it was testing the PayPal button on point-of-sale machines, but that leap into offline retail never crystallized.
Now it’s looking increasingly like mobile payment will render the point-of-sale process irrelevant.
The question of the hour is whether in-store mobile payments will actually ever take off. Apple (AAPL), Google (GOOG, GOOGL) and Samsung (SSNLF) have all been toying with the idea, but nothing concrete has emerged.
Whoever is hungry enough to get retail-level systems deployed may have a chance at replacing the payment card.
Until then, it’s all largely theoretical — and I don’t like to bet on theory.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
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