Struggling since the final months of 2021, digital payments provider and financial technology (fintech) specialist PayPal (NASDAQ:PYPL) gave some encouragement to its long-suffering stakeholders. Investment firm KKR (NYSE:KKR) will purchase up to 40 billion euros ($43.71 billion) of PayPal’s European market-originated buy now, pay later (BNPL) loans. On the news, PYPL stock gained about 4%.
According to a Reuters report, private credit funds and accounts under KKR will acquire substantially all of PayPal’s European BNPL loan portfolio. Further, the news agency states that the deal should generate about $1.8 billion in gross proceeds. Moreover, it should close in the second half of the year. While investors immediately greeted the development with enthusiasm — PYPL stock gained 1.1% in premarket trading Tuesday — KKR slipped roughly 1%.
Once the arrangement closes, PayPal’s leadership team stated that it expects to allocate approximately $1 billion to incremental share repurchases in 2023. This tally contributes to an updated outlook of nearly $5 billion in total share repurchases in the year to date.
Since the start of January, PYPL stock finds itself down more than 7%, a stark contrast to other publicly traded tech enterprises that struggled in 2022 but sparked robust momentum this year. However, in the trailing month, PYPL returned nearly 10%, suggesting a possible recovery.
PYPL Stock Tries to Fight Back
A key component of the fintech firm’s business, BNPL facilitates split payments, enabling customers to spread their purchases via multiple installments. According to Barron’s, PayPal offers customers two options: Pay in 4 (four bi-weekly payments) or Pay Monthly (a plan that extends for up to 24 months).
“Buy now, pay later has become a major asset to PayPal’s checkout experience, driving engagement, payment volume growth, and repeat use while delivering high-value customers to our merchants,” explained Gabrielle Rabinovitch, acting chief financial officer of PayPal.
“Our collaboration with KKR will allow us to accelerate our PayPal Pay Later originations alongside market demand in Europe while preserving free cash flow for other strategic initiatives,” Rabinovitch added.
Looking ahead, the move could be a shrewd one by management, potentially enabling PYPL stock to fight back effectively. In the U.S., total consumer debt passed $17 trillion for the first time, raising questions about the viability of the broader consumer economy.
Across the Atlantic, a 2014 study published by the European University Institute warned that consumers in the region suffered from increasing levels of over-indebtedness. In part, the study highlighted the consequences of the promotion of easy access to credit.
Against the backdrop of the Covid-19 recovery, it’s possible that European consumers could struggle to pay their bills. It’s one less question that PayPal must deal with, thus bolstering PYPL stock.
Why It Matters
According to data from TipRanks, Wall Street analysts peg PYPL stock as a consensus moderate buy. This assessment breaks down as 21 buys, 11 holds and zero sells. Further, the experts’ price target lands at $91.67, implying nearly 33% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
