It looks like time is up for PayPal’s (NASDAQ:PYPL) Pay with Venmo offering on Amazon. Last week, it was announced that as of January 10th, 2024, Venmo would no longer be available as a checkout payment option on the e-commerce giant’s website. That will bring an end to a partnership that began in October 2022, as PayPal looked to monetize Venmo in a more effective manner, and Amazon tried to lure in a new, younger demographic.
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According to PayPal’s last disclosure in 2022, Venmo boasts around 90 million active accounts in the US, its monetization considered a major part of PayPal’s growth strategy.
Yet, the plan hasn’t borne any fruit in this instance, and the reason for the partnership’s termination is a rather straightforward one, says Evercore analyst David Togut.
“We expect this news is simply the result of a lack of traction, as consumers failed to adopt using Pay with Venmo as their preferred checkout method,” Togut opined.
Nevertheless, in the past few quarters, PayPal has talked about various collaborations with Venmo, both online with companies such as Uber and GrubHub, as well as at physical point-of-sale locations with CVS, Abercrombie and Fitch, and other entities. However, the news “creates concern around PayPal’s ability to monetize on these platforms.”
An analysis made by Togut in October 2022 concluded that if 2.5% of Amazon’s GMV were from Pay with Venmo, PayPal’s EPS would still not feel the impact. Given the news, Togut reckons that volumes from Amazon using Pay with Venmo are way below 2.5% and thus he sees “no material impact on forward estimates.”
Morgan Stanley analyst James Faucette also concludes that Venmo volumes must be rather minimal on Amazon. The analyst, though, has often made the case that growing Venmo payment acceptance via a strong presence on big merchant sites – particularly Amazon – is key to “driving checkout engagement with the Gen Z/Y Venmo base and monetizing Venmo long-term.”
“As such,” the 5-star analyst goes on to say, “the removal of Amazon presents a meaningful setback in the Venmo strategy, in our view, especially as our Acceptance Tracker has shown that Venmo acceptance growth outside of Amazon has stalled in recent quarters.”
Still, Faucette is anticipating the expansion of PayPal’s advanced checkout integrations to determine if they can facilitate “faster Venmo enablement” at merchants in 2024.
Ovearall, most on the Street take a bullish stance on PayPal shares although not all are on board; based on a mix of 20 Buys vs. 14 Holds, the stock claims a Moderate Buy consensus rating. At $73.13, the average target makes room for one-year returns of 23%. (See PayPal stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
