PayPal: Company Announces Deal to Sell BNPL Loans to KKR
PayPal PYPL announced that it has reached a multiyear agreement to sell substantially all its existing and future European buy now, pay later, or BNPL, loans to KKR. PayPal introduced its BNPL offering in 2020 and has had significant growth since, processing over $20 billion in BNPL volume in 2022. Strategically, we like this move, as we view offloading credit risk as a positive for payment processors. Additionally, given the still nascent nature of BNPL offerings and the uncertainty around future performance of BNPL offerings, we think this deal removes an element of risk for PayPal. The deal is expected to close in the back half of the year and to generate $1.8 billion in proceeds. As a result, management increased its expectations for stock repurchases this year to $5 billion. Given that we view shares as materially undervalued, we like the decision to increase capital return this year. We will maintain our $135 fair value estimate and narrow moat rating.
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