Cboe Global Markets : Analysts Discuss Libra's Impact On Facebook, Cryptocurrencies And The Payments Market

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Analysts Discuss Libra's Impact On Facebook, Cryptocurrencies And The Payments Market

Wayne Duggan 6/19/2019 10:37:02 AM

Facebook, Inc. (NASDAQ: FB) officially announced its new Libra cryptocurrency, and a pair of Wall Street analysts weighed in on Libra's impact on Wednesday.

Credit Suisse's Take

Unlike other cryptocurrencies like bitcoin and Ethereum, Libra will be backed by a basket of fiat currencies, such as the U.S. dollar and the Euro, and will be governed by the Libra Association, which includes co-founders Visa Inc (NYSE: V) and Mastercard Inc (NYSE: MA).

Given its fiat backing, Credit Suisse analyst Moshe Orenbuch said Libra should be relatively stable compared to popular cryptocurrencies like bitcoin. At the same time, earnings on the reserve of currencies should cover Libra's operating costs, making the cryptocurrency itself and extremely low-cost option for digital payments.

The combination of low transaction fees and fiat currency backing will make Libra an attractive method of sending cross-border payments, and Orenbuch said adoption in this area will likely be rapid. He said there doesn't appear to be a plan for pushing Libra for cross-border business-to-business commercial payments at this time.

Despite its appeal in the international market, Orenbuch said Libra's peer-to-peer domestic transaction appeal is limited.

'We are more skeptical on Libra in the context of domestic transactions - it will better serve markets where there is high inflation, unstable currency or potentially large unbanked population,' he wrote in a note.

He said there are already apps from companies like Square Inc (NYSE: SQ) and Paypal Holdings Inc (NASDAQ: PYPL) that allow users to send domestic payments free of charge in fiat currencies.

Orenbuch reiterated his Outperform rating and $235 price target for Facebook stock.

Canaccord Genuity Weighs In

Canaccord Genuity analyst Michael Graham said Libra will impact each of its founders in different ways. Graham listed the following five takeaways all investors should know:

• Libra is an attempt at creating a service that performs a global social good.
• Libra will be centralized, but only to an extent, with Facebook getting only a 1% vote in the governing body.
• Libra both validates the blockchain models of cryptocurrencies like bitcoin and threatens to displace them at the same time.
• Facebook's association with the service greatly enhances its probability of success given the company's massive user base and global presence.
• Libra is 'by far the most credible crypto threat yet to government-sponsored currencies' and could generate unprecedented regulatory scrutiny.

Graham said Facebook should see a large long-term financial benefit to Libra adoption. Founders eBay Inc (NASDAQ: EBAY), Spotify Technology SA (NYSE: SPOT) and Paypal may generate more business and potentially gain useful data and customer insight. Uber Technologies Inc (NYSE: UBER) and Lyft Inc (NASDAQ: LYFT) could also benefit from lower costs on smaller transactions, such as scooter rentals.

Grahan reiterated his Buy rating and $225 target for Facebook stock.

Facebook shares traded around $186.56 at time of publication.

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