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PayPal's Newly Acquired Unit TIO Networks Suffers Data Breach

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PayPal Holdings, Inc. (PYPL - Free Report) stated last Friday that it has found proof of data breach at its newly acquired company, TIO Networks. The breach might have led to theft of personally identifiable information of about 1.6 million TIO customers and customers of TIO billers.

PayPal has been investigating the issue and suspended TIO operations on Nov 10 as part of this investigation. The company confirmed that the breach didn’t disturb its own platform since TIO systems operate separately.

The investigation has revealed unauthorized access, which led PayPal to safeguard impacted customers. As part of this effort, TIO is working with its patron companies to alert potentially affected individuals.

Also, PayPal is making arrangements for provision of free credit monitoring memberships in collaboration with a consumer credit reporting agency.  The company will directly contact affected individuals and give them instructions to sign up for monitoring.

We observe that the company’s shares have appreciated a huge 90.8% on a year-to-date basis compared with the industry’s gain of 30.2%.

A Prudent Move

A data breach announcement and subsequent steps to take care of the affected customers makes sense as PayPal would not want to suffer because of a recently acquired entity.

Moreover, PayPal’s efforts to make a bigger push in the North American bill pay market and tap un-banked and under-banked customers through the acquisition may get thwarted if it fails to handle the situation.

PayPal Holdings, Inc. EPS Diluted (TTM)

PayPal has been working on the broader goal of partaking into daily financial activities of customers, through strengthening its product portfolio boosting global expansion efforts. We believe that the announced measures are part of PayPal’s efforts to make sure it attains its objective.

Had the breach been exposed before the acquisition, we would have seen another Yahoo-Verizon (VZ - Free Report) case. Verizon made Yahoo sign a revised deal, cutting its price by $350 million following the disclosure of two data breaches by the latter. In this case, since the TIO data breach was exposed post PayPal’s acquisition, it has no such oppourtunity. Rather, it will have to shoulder the responsibility of protecting affected customers.

Zacks Rank and Stocks to Consider

PayPal has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A couple of better-ranked stocks in the broader technology sector include Activision Blizzard (ATVI - Free Report) and Five9 (FIVN - Free Report) , each carrying a Zacks Rank #2 (Buy).

Long-term earnings per share growth rate for Activision and Five9 is projected to be 13.8% and 20%, respectively.

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