What Apple Pay Means for Google, eBay: What Wall Street's Saying

NEW YORK (TheStreet) -- Apple's (AAPL) launch of a mobile payments system could have big implications for both eBay (EBAY) and Google (GOOGL) and the larger payments ecosystem. For the two companies as it relates to their own payments applications, PayPal and Google Wallet, Apple Pay has very different implications, according to analysts.

The Cupertino, Calif.-based company launched Apple Pay in conjunction with its new iPhone 6 and iPhone 6 Plus and smart watch. To use Apple Pay, customers simply have to tap their phone to the credit card reader, while holding down the Home button on their iPhones. "Apple Pay will forever change the way all of us buy things," said Apple's CEO Tim Cook during Tuesday's event.

Apple has signed up a slew of retailer partners for the service, including Macy's (M) , Bloomingdale's, Nike (NKE) , Target (TGT) , Subway, Walgreens (WAG) , McDonald's (MCD) , Starbucks (SBUX) , Whole Foods (WFM) , Disney (DIS) and several others. It's also working with MLB, Instacart, OpenTable, Groupon, Sephora and Uber for Apple Pay support inside the respective apps.

At launch, Apple is working with the major credit card companies (American Express (AXP) , MasterCard (MA) and Visa (V) , as well as major banks Citigroup (C) , JPMorgan Chase (JPM) , Bank of America (BAC) , Wells Fargo (WFC) , and Capital One (COF) ) to create a system where each transaction is authorized with a one-time, unique number to make purchases.

Analysts say that Apple's mobile payments is a threat to eBay's PayPal, while Google on the other hand could ultimately benefit from it long term.

Shares of eBay were down 2.7% $51.30, while Google shares were down 0.27% to $590.39. Here's what analysts are saying.

Gene Munster, Piper Jaffray (Downgraded eBay to Neutral; $55 PT)

While unlikely to impact eBay's business over the next 6-12 months, we believe the unknown competitive threat of Apple Pay will further weigh on EBAY's multiple over the next 3-6 months as Apple Pay has the potential to disrupt the competitive mobile payments market. We believe a lower multiple on EBAY is deserved given the change to the competitive market, even though over the next 6-12 months fundamentals on the core PayPal business remain intact. As a result, we are downgrading shares to Neutral and lowering our PT to $55 from $63.

For the past six months, we have been expecting Apple to announce a payment platform, so today's news was expected from a high level. What we did not expect was for Apple to have Visa, MasterCard, and American Express on board along with meaningful retail partnership like Macy's and McDonald's. Additionally, the integration in passbook and iOS is further along than we expected, making for a more attractive experience than we anticipated and a strong competitor to PayPal. While PayPal digital wallet/point-of-sale accounts for almost no revenue today, the hope of this segment becoming a larger portion of its business has had a positive effect on eBay's multiple in the past. We expect that investors will begin to question PayPal's longer-term role in offline payments and may question the staying power of online payments; we expect investors in the near term will be more conservative with the PayPal multiple.

Apple Pay has strong potential, in our view, to spur mobile payment adoption. Additionally, Apple Pay appears to work with and leverage the existing Payments ecosystem. Accordingly, perceived threats that AAPL could/would compete within the Payments industry should subside. We view this as incrementally positive for the networks and relatively neutral for merchant acquirers. Notably excluded from the Apple Pay wallet is PayPal, which now appears to face certain competitive disadvantages; we wouldn't preclude pressure on new user growth.

Notably excluded from the Apple Pay wallet is PayPal (Visa, MasterCard and American Express included). Additionally, ACH does not appear to be an available funding option. The Apple Pay wallet provides unique security features (i.e., tokenization, fingerprint ID), and supports simple one-click payments capability for certain in-phone apps (e.g., Groupon, Uber). We wouldn't preclude that PayPal's new user growth (increased core user attrition also can't be precluded) could be adversely impacted.

Evan Wilson, Pacific Crest Securities (Google: Outperform; $725 PT)

After the announcement, our Apple analyst Andy Hargreaves is downgrading AAPL to Sector Perform and feels the name is fully valued given the new announcements. With this as a backdrop, if investors are rotating dollars out of AAPL, we recommend GOOGL. We increasingly see Android as a mobile ecosystem leader, which we believe many of Apple's announcements (entrance into larger handsets and smartwatches) vindicate. While Apple will likely continue to have tremendous success at the high end, we believe Android has gone from "laggard to leader." We also think Apple Pay, new token services and a more aggressive issuer and merchant stance in mobile payments could benefit Google over time if it adds new token services to improve its security scheme.

Pacific Crest Securities Group Note

In addition to its in-store mobile payments solution, which could hurt sentiment around eBay's longer-term opportunity, Apple's ambition in e-commerce (desktop and mobile apps) is greater than we had anticipated and represents increasing competition for PayPal. New token services and a more aggressive issuer and merchant stance in mobile payments could also benefit Google over time if it adds new token services to improve its security scheme.

Deutsche Bank Group Note

While Apple was busy releasing its new Apple Pay solution today, many of the companies we met with that have recently delivered mobile solutions to market expressed their opinion that Apple's entrance would bring heightened awareness to the space. Mobile payment panelists (at Deutsche Bank's Tech conference) agreed that the biggest hurdle is achieving broad based acceptance (noted as greater than 80%) given Google, Paypal, and ISIS have all introduced wallet solutions with limited adoption thus far hence Apple's entrance may drive business across the industry as their hardware has done in the past with the evolution of smart phones and tablets.


TheStreet Ratings team rates EBAY INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate EBAY INC (EBAY) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • EBAY INC has improved earnings per share by 8.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, EBAY INC increased its bottom line by earning $2.18 versus $1.99 in the prior year. This year, the market expects an improvement in earnings ($2.97 versus $2.18).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Internet Software & Services industry average. The net income increased by 5.6% when compared to the same quarter one year prior, going from $640.00 million to $676.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 19.9%. Since the same quarter one year prior, revenues rose by 12.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Although EBAY's debt-to-equity ratio of 0.28 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.20, which illustrates the ability to avoid short-term cash problems.
  • Net operating cash flow has increased to $1,494.00 million or 47.77% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 17.66%.

--Written by Laurie Kulikowski and Chris Ciaccia in New York.

Follow @LKulikowski

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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