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PayPal Completes TIO Networks Buyout, Eyes Market Expansion

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PayPal Holdings, Inc. (PYPL - Free Report) has completed the acquisition of Canada-based bill payment company TIO Networks in an all-cash transaction.

The payment processing giant yesterday announced that it has purchased all the outstanding shares of TIO for $2.64 per share. The collective transaction amount is approximately $238 million.

The announcement of the merger was first made on Feb 14. The company stated that it will be funding the purchase with its own cash reserve. After the acquisition, TIO will operate as an independent company under PayPal.

Investors will surely keep an eye on this new deal and its impact post closure to see if it could further boost the ongoing momentum in PayPal’s shares. The stock has appreciated a huge 46.6% on a year-to-date basis against the Zacks Internet - Software industry’s gain of 19.9%.

How is PayPal Poised to Benefit?

Since management made no change in the previously announced fiscal guidance and three-year outlook based on the TIO buyout, we do not expect any instant accretion to PayPal’s earnings.

PayPal seems to be thinking several years down the road. It has been trying to enter the bill pay space. Since TIO is a major player in the North American bill pay market, the acquisition could accelerate the company’s push in the space.

Further, TIO's offline payment processing platform will help PayPal tap un-banked and under-banked customers who are unable to access conventional financial services. Per a Business Insider report, these customer groups roughly encompass 33.5 million U.S. households and 2 billion people globally.

The acquisition gives PayPal access to $7 billion worth of payments from around 14 million clients that TIO serves in North America and its 10,000 biller partners.

PayPal Holdings, Inc. Revenue (TTM)

Our Take

PayPal has been working on a broader goal of partaking into daily financial activities of customers.  We believe that by combining its own payment platform with bill payment, PayPal will be able to strengthen its product portfolio as well as boost global expansion efforts.

We expect the acquisition to significantly boost PayPal’s transaction revenues.

Zacks Rank and Stocks to Consider

Currently PayPal is Zacks Rank #2 (Buy) company. Other stocks worth considering in the broader technology sector include Alibaba (BABA - Free Report) , Lam Research (LRCX - Free Report) and Cypress Semiconductor , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Notably, long-term expected earnings per share growth rates of Alibaba, Lam Research and Cypress Semiconductor are expected to be 30.4%, 16.4% and 10%, respectively.

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