PayPal Holdings is set to become more expensive for merchants, increasing the fees charged for digital payments.
Retailers won’t be too happy, but analysts have applauded the increases, reiterating bullish views on the stock.
From August 2,
(ticker: PYPL) will move away from the fixed fee of 2.9% plus 30 cents per transaction, using a fee menu for various types of online, in-store and other transactions.
The company plans to charge a fee of 3.49% plus 49 cents for transactions with its proprietary products, including PayPal Checkout, Pay with Venmo, PayPal Credit, and Pay in 4. These fees are now 2.9% plus 30. cents on domestic transactions.
PayPal is also adjusting the fees for unbranded online payments with debit and credit cards, to 2.59% plus 49 cents, from 2.9% plus 30 cents. The company lowered the rates for in-person transactions with its credit and credit cards to 2.29% plus nine cents from 2.7% plus 30 cents.
Depending on the revenue split between branded and unbranded transactions, price increases could add $ 4.3 billion to $ 6.9 billion in 2022, estimates David Togut, analyst at Evercore ISI. At the high end, these gains would add 27% more revenue than the current consensus estimate of $ 31.2 billion in 2022.
In addition, since payment processing has such a high margin, a large part of the price increases would be passed on to the bottom line. Togut estimates that the additional income will add $ 1.64 to $ 2.60 per share to 2022 earnings, pushing EPS well above consensus estimates for $ 5.86 in non-GAAP earnings.
The analyst maintains an outperformance on the stock and a price target of $ 313, calling the fee hikes a “bold new pricing strategy.”
“The accelerated shift to e-commerce and online payments uniquely benefits PayPal, given its global leadership,” Togut told Barron’s Monday.
Moshe Katri from Wedbush also likes the plan. The new fee structure aligns PayPal’s prices with the “improved value to merchants” of its ecosystem, he wrote in a note Monday, reiterating his outperformance rating and his goal of $ 300.
But payment processors can push the fee limit further.
Many small businesses and other retailers are complaining about what they see as excessive fees for swiping cards and processing transactions online. The National Federation of Retailers filed a lawsuit in April against the Federal Reserve, arguing that the banking regulator should lower a 10-year cap on sweeping fees.
(MA) are also subject to further consideration in Congress. At a hearing in March, Sen. Richard Durbin (D-Illinois) criticized card networks for their fee practices, saying retailers had “no bargaining power.”
Both card networks recently increased some credit card fees, with Visa planning to implement its hikes next April. And Visa’s debit processing fees are under investigation by the Justice Department for anti-competitive practices. “We believe Visa’s debit practices are in full compliance with applicable laws,” said CEO Al Kelly. Barron in May.
Assuming the regulatory landscape remains the same, however, analysts expect PayPal to gain more share from e-commerce payments. Almost all of the company’s revenue comes from e-commerce, which is expected to accelerate this year after record gains in 2020, according to Lisa Ellis, analyst at MoffettNathanson.
Among payment processors, “PayPal is the clearest beneficiary of e-commerce growth,” Ellis wrote in a note last week. The company is expected to benefit from a post-Covid increase in travel and entertainment spending, which represented 10% of PayPal’s transaction volumes before the pandemic, according to Ellis. She reiterated a buy on the stock and a goal of $ 350.
Shares of PayPal rose 21% this year to around $ 282, beating the
8.8% index gain.
Write to Daren Fonda at [email protected]