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PayPal Still Bests Payments Frenemies Apple, Facebook, Google

Investors may have sold off PayPal ( PYPL ) too quickly last week, an analyst says, after new Apple ( AAPL ) Pay features called into question PayPal’s longtime dominance in payments. Mark Palmer of BTIG wrote in a research note Monday that Apple Pay has a relatively small reach — Apple’s iOS has a 14% global market share — and PayPal is no stranger to competition, successfully fending off offerings from Amazon.com ( AMZN ), Facebook ( FB ) and Alphabet ( GOOGL ) over the years. Reports surfaced Wednesday that Apple Pay will be included in the Safari browser in time for holiday shopping this year. Doing so will help solve the perennial problem with mobile commerce: Shoppers prefer to buy on desktops and browse on mobile devices. PayPal, an IBD Leaderboard stock, fell 5 cents to 38.87 in early afternoon trading on the stock market today . The stock temporarily dropped nearly 8% intraday from an alternate 40.03 buy point Thursday, but closed down about 4%. PayPal’s 38.62 entry still holds for now. It has an IBD Composite rating of 93, where 99 is the highest. Despite the fact that PayPal executives have told IBD on several occasions that Apple Pay growth will actually help the company’s prospects — many of the merchants using Apple Pay process the payment through PayPal subsidiary Braintree — Palmer says that such an argument is a “stretch.” That’s because PayPal earns less if Braintree processes an Apple Pay transaction vs. if the customer uses PayPal. “With that said, we do agree that Braintree could serve as something of a mitigate to the competitive challenge posed by Apple Pay,” Palmer wrote. But threats to PayPal are nothing new, and the company has been fending off competition since it first launched in the late 1990s. Alphabet’s Google Checkout made its debut in 2006, Palmer says, and Amazon Payments launched in 2007. Facebook has also launched Facebook Credits. None have unseated PayPal as payments king. “None of these offerings has diminished PayPal’s growth trajectory, as most recently demonstrated by its 29% foreign exchange-neutral increase in total payment volume during Q4, 2015,” Palmer wrote. Square Shift To Flexible Loans From Cash Advance Digital cash register maker and payments processor Square ( SQ ) said Thursday that it planned to transition its lending business, Square Capital, to flexible loans from its current cash-advance program. In a separate research note, Palmer questioned whether observers who suggested the company’s continued push into lending would drag its valuation down. Palmer, in the note, said that he didn’t believe that was the case because Square CEO Jack Dorsey — also top boss at Twitter ( TWTR ) — sees the lending business as part of a suite of products that add value to small businesses, not a stand-alone operation. To wit, in addition to the loans, Square offers marketing products and other financial services such as payroll that make small businesses (the bulk of Square’s customers) more efficient, Palmer wrote. Because of Square’s large base on merchants and the ease with which it can market loans, it can offer lenders extremely low acquisition costs, Palmer says. Its credit decisions based on the trove of transaction data have also produced a low default rate thus far. “As part of a cohesive bundle of services, SQ’s loan product should be regarded not as an anchor on its valuation but rather as a facilitator of increased growth, in our view,” Palmer wrote. “In the end, we see little reason Square Capital’s loan growth can’t approach the rates demonstrated by the company’s core payments business while enhancing its profitability.” Image provided by Shutterstock .

Adobe Driving Third Wave Of Enterprise Software Disruption

Digital media software giant Adobe Systems ( ADBE ) is well-positioned to drive the third wave of disruption in enterprise software, Rosenblatt Securities analyst Kirk Adams said in a report Monday. The first software wave was enterprise resource planning (ERP), which transformed back-office operations. Then came customer relationship management (CRM), which changed front-office operations. Adobe is calling the third wave “experience business,” which aims to reinvent how companies create, deliver and market products and services. “Adobe believes that this third wave could be bigger than both ERP and CRM,” Adams said. He reiterated his buy rating on Adobe stock and price target of 112. Adobe was down a fraction to above 92 in midday trading on the stock market today . Its stock hit an all-time high of 98 on March 18, a day after it reported better-than-expected first-quarter earnings and raised its guidance. Adobe outlined how it is pursuing experience business last week at its Adobe Summit 2016 conference in Las Vegas. This year’s conference drew 10,000 attendees, up from about 7,000 at last year’s show. “Adobe is focused on helping enterprises deliver consistent, high-quality experiences for their customers,” Adams said. “There are many point products and solutions from other companies, but only Adobe provides end-to-end solutions from content creation to marketing execution to measurement.” Adobe is the leader in digital content creation with its Creative Cloud offerings. Now it is moving aggressively into the marketing world with its Marketing Cloud, Adams said. Marketing Cloud includes tools for tracking the popularity of online content and the effectiveness of advertising and marketing campaigns. At its Summit conference, Adobe announced an audience measurement partnership with ComScore ( SCOR ) as well as new services and enhancements to its cloud platforms. “The Summit reinforced our view that Adobe continues to distance itself from competing digital marketing platforms,” Baird analyst Steven Ashley said in a report Wednesday. He rates Adobe stock as outperform with a price target of 105. Image provided by Shutterstock .

Facebook, Google, Amazon May Be Caught Up In Netflix Regulatory Flap

Netflix ’s ( NFLX ) revelation that it has reduced the quality of video streaming to the wireless customers of AT&T ( T ) and Verizon Communications could complicate Web regulatory issues for Internet giants such as Alphabet ’s ( GOOGL ) Google, Facebook ( FB ) and Amazon.com ( AMZN ), says a Guggenheim Partners analyst. Netflix last week fessed up to throttling video to AT&T and Verizon ( VZ ) customers for several years, but not to the wireless subscribers of Sprint ( S )or T-Mobile US ( TMUS ). Netflix says it lowered video quality to protect its own customers from exceeding the monthly data caps of AT&T and Verizon. Sprint still offers unlimited data plans while T-Mobile typically slows network speeds rather than imposing overage fees, said a report. Paul Gallant, an analyst at Guggenheim, says Netflix’s policies do not violate federal “net neutrality” rules, which bar Internet service providers from throttling, blocking or prioritizing Web traffic. The rules apply only to ISPs, not Internet firms, noted Gallant. The Federal Communications Commission in February, 2015 expanded net neutrality rules to wireless networks for the first time. A federal court is expected to rule on a legal challenge to the FCC’s new net neutrality rules in April. “Getting ‘caught’ doing this may put Netflix on its heels in Washington at a time when important (Internet) policies like interconnection pricing and zero rating are fluid and could go either way,” said Gallant. T-Mobile and Comcast ( CMCSA ) have adopted video policies referred to in the telecom industry as “zero rating” because streaming does not count toward monthly data caps and there are no payments involving content partners. FCC chairman Tom Wheeler has pushed for competition between Internet video providers, also called over-the-top (OTT), and the pay-TV industry. “ISPs have long complained that they are being unreasonably singled out for regulation within the Internet ecosystem. This Netflix report may highlight for government officials the leverage possessed by large Internet companies,” added Gallant. “Slowing streams to specific wireless (users) implies a range of steps a large edge provider could take to disadvantage an ISP relative to its competitors. With video becoming a rising priority of Internet giants like Google , Amazon, and Facebook , the issue of interconnection fees and zero-rating services will remain important battlegrounds — with the current FCC actively supporting OTT-based competition.” Image provided by Shutterstock .