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PayPal Plans to Buy Simility, Adds Risk Management Abilities

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PayPal Holdings, Inc.’s (PYPL - Free Report) latest agreement to acquire Simility, a Palo Alto-based company developing fraud prevention technology solutions, bodes well for reinforcing its position in the online payment solutions market.

These solutions are based on machine learning techniques that help in efficient monitoring of online transactions between buyers and sellers. It also leverages insights from other data sources.

PayPal, which is planning to become the majority stakeholder in Simility, already holds a minority stake in the latter. The company has agreed to pay $120 million in cash for the acquisition.

With this buyout, the company strives to deliver an effective risk management solution to the e-commerce companies and online merchants. Consequently, PayPal will be able to attract more of these companies and merchants to its platform as threats of fraud continue to increase in online and digital market.

This is in sync with the improvement of the company’s clientele, which will further aid its revenue generation.

Coming to the price performance, shares of PayPal have returned 58.2% over a year, outperforming the industry’s rally of 34.7%.

E-commerce Fraud in Focus

Fraud activities and cybercrimes are on the rise globally with the rapidly growing e-commerce market. E-commerce companies are constantly under the threat from fraudsters regarding  online payment activities, shipping of products and data breaches like customer’s card and other personal information. These activities are deterrent to growth of these companies.

Per the latest report from Signifyd, the total fraud loss in the global e-commerce market increased 7% in 2017 from 2016. Account takeover loss on merchant sites and online department store surged 80% and 285% in 2017, respectively.

According to data from Experian report, e-commerce fraud increased faster than the e-commerce sale in the United States last year. Fraud activities recorded rose of 30% while sales grew 16%. Moreover, shipping fraud and billing fraud surged 37% and 34%, respectively.

Consequently, the alarming rate increase in fraudulent activities has fueled the demand for fraud prevention measures, especially in the payment sector. Thus, PayPal will continue gaining momentum in the e-commerce market with its latest move.

Buyouts to Improve Product Portfolio

PayPal’s strong focus toward expansion and innovation of its product portfolio with the help of strategic acquisitions will continue to improve customer base.

Moreover, buyouts have played a significant role in shaping the company’s growth trajectory over the past few years. The recent deal will add adaptive risk management capabilities to PayPal’s product portfolio. Notably, this marks its fourth acquisition within a month.

Recently, the company announced its plans to acquire Hyperwallet which is in sync with the advancement of its payout capabilities for e-commerce and marketplace platforms. Further, the buyout of Jetlore has leveraged its portfolio with AI capabilities while iZettle takeover is helping in its global expansion.

According to the latest report from Statista, the total transaction value in the digital payment market is anticipated to reach $3.3 trillion in 2018 and likely to grow at a CAGR of 13.5% between 2018 and 2022. Further, it is expected to reach $5.4 trillion by 2022.

We note that all these buyouts will continue to strengthen the product offerings of the company.  This in turn will aid it in catering to growing need for advanced payment solutions worldwide and capitalize on this rapidly growing market.

Further, PayPal’s increasing number of acquisitions reflects proper management execution and robust operating activities.

Zacks Rank & Stocks to Consider

Currently, PayPal carries a Zacks Rank #3 (Hold).

A few better-ranked stocks that can be considered in the broader technology sector are Twitter (TWTR - Free Report) , Upland Software (UPLD - Free Report) and Attunity (ATTU - Free Report) . While Twitter and Upland Software flaunt a Zacks Rank #1 (Strong Buy), Attunity carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Twitter, Upland Software and Attunity is currently pegged at 23.1%, 20% and 20%, respectively.

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