Third Point Reveals PayPal Stake, Expects Shares to Hit $125

Third Point LLC hedge fund manager Daniel Loeb revealed on Tuesday that the company has taken a new stake in PayPal Holdings Inc., and forecasts shares of the online payments company to reach $125 within 18 months.

Third Point did not disclose the size of the new position, but it has been included in the second quarter, according to the investor letter.

Loeb also sees PayPal’s earnings per share (EPS) to beat expectations, estimating shares to climb up to $125 within 18 months, representing 43 percent gain to Friday’s close.

PayPal is just scratching the surface on pricing power, said Loeb. The US online payment platform recently changed its one-size-fits-all method in merchant contracts to a dynamic pricing model that reflects the value-add of a growing set of products.  

When asked about the new stake, a spokesperson for PayPal stated that they appreciate the investment in their company.

Following the news, shares of PayPal gained 3 percent to $91.88 on Tuesday, after falling in early trading. Its shares climbed 1.3 percent to $88.64 on Monday, placing its market value at around $105 billion.

PayPal Dealing with Competition

In terms of competition, The New York-based group sees similarities between PayPal and other top internet platforms, such as media services provider Netflix Inc. and e-commerce group Amazon.com Inc., which include high market share, untapped pricing power, and wide margin expansion potential.

Consumers are interested in PayPal because it allows hassle-free, one-touch checkout across millions of online merchants, according to Loeb, citing how PayPal’s 237 million active accounts and 19 million merchants using its checkout payment system have a substantial advantage size against its competitors.   

Moreover, Third Point considers PayPal’s Venmo mobile payment platform, dynamic pricing and offline payments as beneficial for PayPal, with the firm projecting Venmo to generate $1 billion in revenue within three years.

Locked in a battle with mobile payment company Square Inc., PayPal has also turned to Swedish tech firm for iZettle to strengthen its foothold in Europe and Latin America, announcing in May a deal to acquire the platform for small businesses for $2.2 billion.

The proposed transaction, if completed, would take PayPal from the online commerce market into in-store and offline payments industry, where global payments are much higher. The iZettle deal would be the biggest acquisition in PayPal’s history as well.

In addition, with the firm’s revenue falling behind its peers, Third Point believed PayPal could obtain an advantage from some tightening in costs in information technology, customer service and credit servicing, as well as collection.

Third Point said it expects more cost discipline from PayPal, and that margins are an area where the company has a clear opportunity to deliver, even as it invests for the future.

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