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PayPal Sells Consumer Credit Receivables, Looks to Diversify

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PayPal Holdings, Inc. (PYPL - Free Report) has announced the conclusion of the sale of its consumer credit receivables to Synchrony Financial (SYF - Free Report) .

The latest divestiture is in sync with PayPal’s “asset light” strategy. Although the company will lose the interest earnings on these credit receivables but it will also be free from the credit-related volatility risk.

This deal was announced last year back in November when the company had agreed to sell receivables worth $5.8 billion.

PayPal received $6.9 billion as deal proceeds and Synchrony Financial ended up acquiring receivables worth $7.6 billion following the completion of the deal. Synchrony Financial’s acquired receivables include PayPal’s U.S. consumer credit receivables portfolio worth $6.8 billion and $800 million of participation interests in the receivables held by the third parties.

Deal Benefits

The recent deal seems to be a win-win situation for both the companies. The transaction has led to the extension of their co-branded consumer credit card program agreement which is likely to fortify their presence in the credit card market.

Per the data from Euromonitor International, the credit card products are anticipated to contribute $4.8 trillion to the total card payments volume by 2022.

Consequently, PayPal is well poised to reap benefits from this credit card market driven by the expansion of its partnership with Synchrony Financial.  Notably, this will allow the company to enhance its credit offerings.

Moreover, this will add strength to the PayPal Credit online consumer financing program and the U.S. PayPal-branded consumer credit card program, enabling the company to deliver improved customer experience. This will help in attracting new customers to the platform.

Coming to the price performance, shares of PayPal have returned 52.4% over a year, outperforming the industry’s rally of 32.9%.



Scope for Diversification

We believe the recent transaction will aid the company in diversifying its business, consequently driving momentum in the online and digital payment sector.

PayPal intends to use the freed up resources on the development of its other existing business as well as new businesses with more potential in the long haul.

Moreover, the company will able to focus on more strategic acquisitions which will benefit its online payment solutions portfolio.

PayPal has completed the buyout of iZettle, which marks as its biggest acquisition to date. Further, the company has acquired Jetlore and entered into definitive agreement to take over Simility and Hyperwallet. All these endeavors have aided the expansion of its product portfolio.

Consequently, we believe PayPal’s solutions and product offerings will continue to expand and enhance with growing number of acquisitions. This is likely to improve its customer base.

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 Zendesk (ZEN - Free Report) and Upland Software (UPLD - Free Report) . Both the stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Zendesk and Upland Software is currently pegged at 28.01% and 20%, respectively.

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