Loeb's Third Point Reveals New Stake in PayPal

It’s not yet time for the wave of second-quarter 13F filings to become available to the public, but Daniel Loeb’s Third Point LLC already has some information to reveal to investors. A report by CNBC based on an investor letter indicates that Third Point entered a new position in PayPal Holdings Inc. (PYPL) last quarter, believing the stalwart online payments company to be the next Netflix Inc. (NFLX) or Amazon.com Inc. (AMZN). Loeb indicated in his letter his belief that the stock will generate earnings per share above expectations.

Parallels to Amazon, Netflix

Loeb wrote to clients early this week, saying that “consumers love PayPal because it enables hassle-free, one-touch checkout across millions of online merchants.” He added that his fund sees “parallels between PayPal and other best-in-class internet platforms like Netflix and Amazon: high and rising market share, untapped pricing power, and significant margin expansion potential.”

Loeb noted that PayPal has 237 million active accounts at this time, alongside 19 million merchants which have adopted its payment solutions systems for online checkout. This constitutes a “10X” advantage over its competitors.

$125 in 18 Months

The billionaire founder of Third Point believes that PayPal stock will climb to $125 per share within the next 18 months. This would represent a 43% upside to Friday’s close, according to the report. As of this writing, PYPL is trading at $89.41. This represents about a 1% gain so far in trading today.

Loeb suggested that “PayPal is just scratching the surface on pricing power: the company recently shifted away from a ‘one-size-fits-all’ approach in merchant contracts to a dynamic pricing model that reflects the value-add of a growing suite of products.” It’s unclear from the report exactly how large Third Point’s new position in PayPal is. Indeed, investors may have to wait a couple more weeks to learn just how many shares Loeb bought and sold over the course of the second quarter, when his fund’s quarterly 13F filings become available to the public. For its part, PayPal indicated through a spokesperson that they “appreciate the investment in our company.”

Loeb’s Third Point Offshore Fund has gained 0.8% for the first half of the year, as compared against the 2.6% return for the S&P 500 during the same period. With his fund lagging behind the S&P benchmark, it’s likely that Loeb is in need of a significant win with the PayPal purchase. Other investors in the online payments company are surely hoping that his predictions, or a similar outcome, will come true over the next year and a half.

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