PayPal, PYPL, Shares Approach IPO Base Resistance On Bullish Venmo Analyst Comments

Shares in PayPal Holdings, Inc. (NASDAQ: PYPL) fell $0.37, or 0.94 percent today on volume lighter than average after rallying on heavy volume on Monday and Tuesday. On Monday, PYPL shares broke above short-term resistance at $37.77; today’s trade sees the market holding prices above this level.

The all-time high for PYPL stock, $42.55, was printed on July 20, 2015, and represents a current final resistance level for the shares.

Also on Monday, Investor’s Business Daily reported on comments made by Jason Kupferberg, an analyst with Jeffries, regarding a survey of 1,000 of PayPal’s Venmo customers who indicated that “67% of Venmo users would use the Pay With Venmo feature once or twice a month, with 44% using it three to five times a month, and 19% using it six to 10 times per month.”

Shares in PayPal, PYPL, trade just below their all-time high printed shortly after their July 2015 initial public offering.

Venmo was launched in 2009 by Andrew Kortina and Iqram Magdon-Ismail. The app, which is currently free but is expected to be monetized by PayPal in the future, allows users to transfer money to each other. Initially, the app was mostly used between friends to settle debts, such as bills for meals and rent. In October, PayPal announced plans to allow merchants to accept payments with Venmo, as reported by Fortune.

PayPal purchased Braintree in 2013 for $800 million, after Braintree acquired Venmo for $26.2 million in 2012, as reported by Bloomberg.

“In our view, Venmo has just scratched the surface on this front, through both its Pay With Venmo capability, where users can purchase goods at select merchants, and by integrating Venmo for payments within smartphone applications,” a note co-authored by Jim Cramer and Jack Mohr with the Street reads. “As these efforts continue to take shape, we have repeatedly indicated Venmo will become a more meaningful top- and bottom-line contributor to PayPal.”

In July 2013, shares of Facebook, Inc. (NASDAQ: FB) broke above the highest point of a 14-month IPO base: $36.66. Shares of Facebook closed yesterday at $109.95, up close to 200 percent since surpassing the then all-time high.

If PYPL shares do manage to break above their current all-time high, there is, unfortunately, no guarantee that they will behave as FB shares did and continue to trade higher. In fact, institutional investors looking to sell large quantities of stock have been thought to intentionally break shares out of consolidations in order to create a market to dump larger positions on.

However, every single stock that has recorded significant gains after going public must trade to new highs out of an IPO consolidation, including Microsoft Corporation (NASDAQ: MSFT), Amazon.com, Inc. (NASDAQ: AMZN), Wal-Mart Stores Inc. (NYSE: WMT), and many others.

Two ways investors who buy breakouts from IPO bases protect themselves from false moves is through the use of stop-losses, as reported by Investor’s Business Daily, and diversification, as reported by Investopedia.

Currently, earnings growth numbers forecast for PayPal are below the levels recorded by companies like Facebook and Microsoft when their shares first cleared IPO bases. However, the recent comments made by analysts with regard to Venmo indicate that while not certain, upside surprises by PayPal are not outside the realm of possibility.

The Wall Street analyst consensus for PYPL earnings per share for 2016 is $1.49, which would represent growth of 15.5 percent from 2015 numbers. In 2017, analysts see the company earning $1.76 per share, growing 18.1 percent from 2016 levels. Analyst views have remained steady over the past 90 days.

PayPal carries zero debt and reported a cash position of $3.41 billion at the end of the 2015 fiscal year. PayPal reported an operating margin of 16.3 percent and a profit margin of 13.3 percent through 2015. The company has delivered a return on equity of 11.2 percent.

Major institutional holders of PYPL shares as of December 31, 2015, included The Vanguard Group, Carl Icahn, State Street Corporation, Fidelity Management and Research, and BlackRock Institutional Trust.

[Photo by Spencer Platt/Getty Images]