Loeb’s Third Point hedge fund takes a stake in PayPal

Dan Loeb’s Third Point has taken a stake in PayPal Holdings in a vote of confidence for the payments processor as it faces increasing competition from the likes of Amazon.com and Square.

The New York-based hedge fund said PayPal stock could reach $125 s share within 18 months on above-consensus earnings, according to an investor letter obtained by Bloomberg. Third Point didn’t disclose the size of the stake, which it acquired in the second quarter.

Third Point detailed three revenue opportunities that it thinks PayPal can benefit from: Its Venmo platform, dynamic pricing and offline payments.

It said it also expected more cost discipline going forward from the company.

“We see parallels between PayPal and other best-in-class internet platforms like Netflix and Amazon: High and rising market share, untapped pricing power, and significant margin expansion potential,” Third Point said the letter.

A representative for PayPal said the company appreciates the investment.

Third Point said Venmo could contribute $1 billion in revenue within three years.

PayPal is also just “scratching the surface on pricing power” as it shifts away from a one-size-fits-all” approach to charging merchants.

PayPal shares turned positive on the news, climbing as much as 2.7 percent after falling in Monday trading. Its shares finished up about 2 percent, to $89.24, in New York trading, giving it a market value of about $105 billion.

In May, it announced a deal to acquire Swedish small-business platform iZettle for $2.2 billion to help expand in Europe and Latin America and compete with Square.

The iZettle deal takes PayPal from the world of online commerce into in-store and offline payments, where global spending is much higher, Third point said in the letter.