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The social media giant and the online payment service — "a match made in heaven" — could collaborate further in applications such as WhatsApp, Instagram and Facebook Marketplace, the analysts said in a note on Thursday.
"We roughly estimate that possible WhatsApp and Instagram partnerships could bring 40 to 60 million new users to PayPal's network each, and the Marketplace partnership could generate on the order of about $1.5 billion of incremental revenue for PayPal," Lisa Ellis and Michael Nathanson said in the note.
"It is quite likely that Facebook and PayPal announce a significant expansion of their partnership sometime in the coming months," the analysts wrote. "Arguably, they need each other now more than ever."
Shares of Facebook were up 0.35 percent and PayPal rose by 1.23 percent at Thursday's close. MoffettNathanson set its price target for Facebook at $165 and PayPal at $100. The targets imply gains of 14 percent and 15.6 percent, respectively, from Wednesday's closing price.
The partnership started in 2016 to enable customers to link their accounts and use PayPal to shop on Facebook Messenger. In October 2017, they expanded the partnership by allowing Messenger users to send and request money directly in the app via their PayPal accounts. The relationship has been positive for both companies, bringing in new users for PayPal and boosting Facebook's e-commerce business.
MoffettNathanson predicted PayPal could generate millions more new users by powering payments in WhatsApp in the near future.
"Even if only 5 percent of the 1.3 billion WhatsApp users are converted, PayPal would capture 65 million new users – a 28 percent growth in its base," MoffettNathanson said.
Other collaboration opportunities could come from enabling Instagram users to buy items they see on their feeds without leaving the app and expanding their partnership in Facebook Marketplace, the analysts noted.