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PayPal: Bitcoin Will Drive Engagement but Not Much Profit, Says Analyst

PayPal: Bitcoin Will Drive Engagement but Not Much Profit, Says Analyst
Analyst Bio:
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The secular shift to digital payments got further confirmation on Wednesday when PayPal (PYPL) announced it will launch a cryptocurrency service on its platform.

Account holders will be able to buy and sell digital assets and use them to make purchases from the service’s 26 million merchants across the globe.

PayPal has been granted a conditional Bitlicense from the New York State Department of Financial Services, and will initially add Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. The company is partnering with cryptocurrency firm Paxos, who will be responsible for the trading and custody of the assets.

The move should be a win-win both for PayPal and crypto enthusiasts who can make use of PayPal's huge network of merchants on a platform that currently boasts 325 million active accounts.

The service should become available to US users over the coming weeks while the Venmo app and several international markets will be added during the first half of next year.

Allowing for Bitcoin trading has already been a boon for rival digital payment company Square (SQ). Square’s Cash App enabled Bitcoin trading in early 2018 and since then has significantly increased engagement and monetization, estimated to be 3 times as much as that of Venmo, PayPal’s equivalent.

PayPal has obviously been keeping an eye on developments and hopes to emulate its success.

However, Rosenblatt analyst Sean Horgan tempers investors’ expectations of a large uptick in profit.

“While we view this as a positive development for PYPL, we remind clients that bitcoin trading is an engagement driver and is likely to provide indirect revenue via customer acquisition/engagement,” the analyst said. “While revenues may see a large step up similar to SQ has, accounting rules require the reported (and perhaps misleading) revenues will likely represent an immaterial amount of operating profit as bitcoin volumes are virtually priced at cost.”

Overall, Wall Street loves this stock, earning a stellar analyst consensus rating, as TipRanks analytics demonstrate PYPL as a Strong Buy. Out of 30 analysts polled in the last 3 months, 25 are bullish, while 5 remain sidelined. With a return potential of 9%, the stock's consensus target price stands at $223.54. (See PayPal stock analysis on TipRanks)