Apple Inc. (AAPL) is said to be expanding the scope of Apple Pay, the company’s mobile payments business, and you can bet your bottom dollar that Paypal Holdings Inc (PYPL) stock owners aren’t happy.
You can see that reflected in the PayPal stock price Thursday, which is off some 4%. The growing ambitions of Apple Pay aren’t entirely to blame for that, however, as Sterne Agee initiated PYPL at a “neutral” rating, and the market as a whole is down.
That said, the increased scope of Apple Pay certainly isn’t good news for PayPal. Let’s take a look at just what the folks in Cupertino have in mind for Apple Pay, and whether AAPL stock itself will benefit from the new capabilities.
AAPL Stock: Taking Pay to Websites
Apple Pay currently has two uses: Firstly, users of the newer iPhones can use it in brick-and-mortar stores equipped with NFC-enabled registers. Just tap your phone to the register, press your fingerprint to your phone’s screen, and boom! The transaction’s done.
Secondly, you can also use Apple Pay to easily complete in-app purchases using your fingerprint for verification, instead of filling out all your credit card information. Think of Amazon.com, Inc. (AMZN) and its 1-click-pay option — transactions made effortless.
Apple plans on adding a third use to Apple Pay, expanding its functionality to allow it to work in the Safari browser on iPads and iPhones equipped with Touch ID, according to an exclusive Re/code report that came out Wednesday afternoon.
That’s no good for PYPL stock, as Re/code points out:
“PayPal offers a mobile payment product for websites and apps called One Touch, which is used by more than 250 of the top 500 online retailers. But Apple Pay is still a quicker and cleaner express-checkout option for iPhone users…”
Like every tech company today, PayPal is making mobile payments a big priority. Even though the majority of e-commerce still happens on desktops and laptops, transactions on mobile devices and tablets are ramping up fast and will soon surpass desktop and laptop purchases.
PayPal’s mobile payment volume surged 45% in the fourth quarter of 2015, and payment volume on its social payments platform, Venmo, grew almost four times that fast last quarter.
If the Re/code article is correct, Apple plans on unveiling Apple Pay for websites sometime before the holidays.
Apple Pay’s Impact on PYPL Stock
So will it crush PayPal? I don’t think so. I do think that it could slow PayPal’s growth rate; some iPhone users may switch to Apple Pay for mobile web transactions, and PayPal could miss out on a lot of potential customers.
But as far as how to trade this news? I think Wall Street’s already digested and incorporated the news into PYPL’s stock price. Although it’s curious that shares didn’t sell off in late afternoon trading on Wednesday, a 4% downtick today seems about right. We really don’t want to overreact since this is still just an unconfirmed report with an unknown launch date.
As for its impact on AAPL stock, I expect the impact will be minimal, and frankly meaningless in the short-term. 68% of revenues came from iPhone sales last quarter, so that should remain the primary focus of investors. Apple Pay hasn’t even produced enough revenue to earn itself a line item in Apple’s quarterly reports yet.
Maybe Apple Pay will be broken out in its own segment one day, but we’re still a few years out from that, at least. While I think AAPL stock is overdue for a run up to $120, I wouldn’t buy solely because of this news.
As of this writing, John Divine was long AMZN stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
