PayPal (PYPL) stock is trading higher after releasing strong third quarter results, announcing a partnership with OpenAI (OPAI.PVT).
Mizuho Americas senior financial technology analyst Dan Dolev credits the gains to three things: the OpenAI integration, taking share in the buy now, pay later (BNPL) space, and the introduction of a dividend.
Also catch Dan Dolev’s thoughts on SoFi Technologies‘ (SOFI) neutral stock reaction on top of its strong third quarter earnings results.
To watch more expert insights and analysis on the latest market action, check out more Market Catalysts.
00:00 Speaker A
Let’s start with PayPal. What is the significance of this open AI partnership and like how exactly is it going to work and how material do you expect it to be?
00:10 Dan
Look, we’ve we’ve uh seen some research out there that there’s going to be over like a 20% bump in e-commerce. This is kind of like goes back to like some McKinsey work that they’ve done, very, very detailed work that they’ve done and we’ve written about, you know, a big beneficia, another big beneficiary and uh of oftic AI, which is a firm, which hasn’t gotten that bump, even though 10% of their volumes is actually Shopify, which did get that bump, right? So we were saying like, as soon as this news trickles through, anyone that sort of touches this sort of, you know, magic uh, you know, magic button gets a huge boost and and today is PayPal’s date necessarily, but it is a material, it is a material improvement if those research reports are correct and those predictions on e-commerce boost because of a Gentic AI, because of people being uh told what to buy and the the app buys for you. That’s like a big deal.
00:58 Speaker A
Yes, it would be a big deal. We’ll see, we’ll see how it plays out and how quickly it plays out, right? Um, the backdrop for PayPal appears to be good. The company is raising its forecast, but but like square this for me, Dan, because on the one hand, they’re raising their forecast. On the other hand, they’re talking about maybe some weakening consumer spending trends and the company’s, um, losses, their credit losses did tick up this quarter. So, how are you sort of balancing those things?
01:25 Dan
Look, I mean, we think this is actually, this is actually good news, right? So, what you’re seeing now is despite all this stuff. We know there has been some consumer. I think Jamie the CFO was talking about lower average ticket values, right? which is kind of a sign of a little bit of weakness in the consumer. So, the fact that they’re able to raise the guide. By the way, they I don’t think they raised sort of the core guide and you know, the branded checkout button is still growing 5%, which isn’t like but it’s not better than what it, you know, than what it was in the last quarter. But the fact that they continue the numbers continue to move up despite all these headwinds is actually good news. So so that the next catalyst is like imagine what they what this company could do when you get some tailwinds instead of headwinds.
02:08 Speaker A
Well, I was going to ask, what are those tailwinds, Dan? Because I know you’re a bull on the stock. The shares are down what, about 9% this year. What do you think is going to be that unlock?
02:19 Dan
The unlock could be, again, remember the branded checkout button experience now includes buy now pay later and they said they’re going buy now pay later north of 20%. They’re actually gaining share from companies like Klarna in Europe and they’re crushing it in buy now pay later. They’re literally crushing it in buy now pay later. Not nothing that has to do with the firm because the firm is on a different level. They they do interest bearing loans. This is more sort of like paying four, paying five, paying six. If this continues to accelerate and that new experience continues to sort of accelerate, that’s like an uptick to the branded checkout button. we believe that they can get to that like 2027 sort of high single digit growth in the branded checkout button. That’s the unlocking. Plus you didn’t even talk about the dividend. That’s like a huge thing, right? It opens up PayPal to a whole new cohort of investors.
03:02 Speaker A
Yeah, let’s talk about the dividend, Dan. That definitely caught my attention this morning. So, they’ve never paid one before, right?
03:08 Dan
Correct. So this is a new thing and I mean, there’s certain investors, institutional investors on Wall Street that are mandated to invest in companies that provide a dividend. So that puts you like in a different bucket. It’s sort of it’s like getting it’s the the analogy here is like getting included into the S&P 500.
