How the Facebook Libra Announcement Affected Shares of Western Union, MoneyGram, PayPal & Square
Western Union shares declined Tuesday amid the Facebook announcement of its new cryptocurrency, Libra, which is supposed to be integrated with Facebook, and its subsidiary apps Instagram, WhatsApp, and more. Western Union, a legacy consumer-to-consumer money sending platform was among the worst performers on the S&P Index on Tuesday, as it fell 2.4%. It closed at $19.57 a share.
Facebook’s cryptocurrency Libra is supported by a legion of well-known companies from both within the crypto industry and outside of it, including payment companies like Visa, Mastercard and PayPal. Blockchain companies involve Coinbase, Xapo and others. The cryptocurrency is expected to launch in the first half of 2020.
Facebook is eyeing the cross-border payments and remittances market. Libra users would send money internationally and could skirt using a bank or money transferer like Western Union.
“Consumer-to-consumer” money exchanges make up approximately 80% of Western Union’s revenue, the company reported in May. You can see the big drop starting Tuesday morning, from which it has yet to recover fully.
Meanwhile, money-transfer service MoneyGram partnered with Ripple. MoneyGram has pledged to use Ripple’s XRP technology for cross-border transfers of digital funds for at least two years. The announcement spared MoneyGram a Facebook dealt decline in share price, and instead it spiked on the announcement.
Ripple agreed to purchase $30 million worth of MoneyGram shares at $4.10 apiece – much higher than its listed share price. Ripple holds the option to purchase $20 million more at its discretion.
While MoneyGram shares closed at $1.45 on Monday, they increased to nearly $4 per share in after-hours trading, representing a 150% increase. After the announcement, Ripple’s XRP token rose over 5% after the announcement.
Since MoneyGram’s attempt to sell the company to Chinese financial-services company Ant Financial, which is owned by Alibaba Group owner Jack Ma, was blocked by U.S. authorities, shares fell 80% while the S&P index has increased 3.9%.
For MoneyGram and Ripple, the deal serves as a counterbalance to the announcement of Facebook’s Libra. Ripple has been testing its technology with MoneyGram since early 2018.
“This strategic partnership will enable MoneyGram to greatly improve its operations and enable millions of people around the world to benefit from its improved efficiency,” Ripple Chief Executive Brad Garlinghouse said in a statement Monday. “This is a huge milestone in helping to transform cross-border payments and I look forward to a long-term, very strategic partnership between our companies.”
Paypal (PYPL) stock spiked early Tuesday morning before falling from a high of $118.21 to $116.48. PayPal is working on Libra with Facebook.
“This ecosystem will be enhanced by the Libra Blockchain, a new blockchain that is being built from the ground up to prioritize scalability, security, and reliability, as well as the flexibility required to evolve over time,” wrote PayPal President and CEO, Dan Schulman on the company’s website. “The Libra Reserve, a reserve of real assets that will back the Libra currency, will provide enhanced stability, low inflation, wide global acceptance, and fungibility.”
Square (SQ) is up over 28% year-to-date, though Square stock currently sits 29% below its 52-week. At the time of this writing, Square stock is valued at under $72. Analysts say the company was move into new markets.
“We contend the limits of these attributes will be tested as it moves into restaurants and other complex verticals,” SunTrust Robinson Humphrey analyst Andrew Jeffrey said in a note out in April.
The Jack Dorsey-owned financial service provider has hired former Alphabet executive Steve Lee to oversee its Bitcoin platform, CashApp. Despite Facebook’s entrance into the payment space, as shares have increased 29% thus far in 2019. Part of this is due to hedge funds are buying Square stock.
The money-transfer stocks are mixed. This will be an interesting space to keep an eye on as we inch closer to Facebook Libra launch in the first half of 2020.