eBay: The PayPal Factor

Consumer spending has been at the forefront of the market. Market volatility has existed due to bad weather in New York the last weekend before Christmas forcing shoppers to stay home. Recently released data for online retailers showed an increase of 6, 8, and 10% of unique visitors to online stares for Amazon (AMZN), Apple (AAPL), and Wal-Mart (WMT) respectively. eBay was down 16% in the same category.

eBay still had a greater number of total unique visitors with 32.6 million, about 5.3 million visitors more than Amazon. Amazon is saying that this was their greatest Christmas season ever; why should eBay not be just as ecstatic? eBay, though down 16% in visitors, is still receiving more customers than their chief rival, Amazon.

Also, we cannot forget the recent partnership between PayPal, a company owned by eBay, and Wal-Mart. Wal-Mart recently began allowing online customers to pay with PayPal on their website; it also encouraged customers to use PayPal by offering a twenty dollar credit to the customer's PayPal account if the purchase is over twenty dollars. With Wal-Mart attracting over 18 million visitors to their online store and PayPal being offered as a payment method, eBay will be able to partially make up for the 6 million visitors lost this holiday season. John J. Donahoe CEO of eBay says that merchants currently like PayPal even more in these economically challenging times because of the low costs that it offers.

PayPal is now the backbone of eBay. PayPal make up 28% percent of total revenues and eBay hopes that will increase to over a third in the coming quarters. In its most recent earnings call, eBay reported that payment volume grew 12% for PayPal on eBay and a whopping 49% off of eBay in Q3. This quarter, PayPal had more payment value then eBay had total merchandise volume.

eBay has the right idea: don’t be afraid of change. PayPal is now becoming the backbone of eBay rather than eBay itself. The company has not only accepted this fact, but also embraced it. eBay has become a growth company that likes expansion. Skype has also become a key factor, driving revenue growth 46% this quarter. Hopefully, the new acquisition of Bill Me Later can be as profitable as Skype. eBay is undervalued right now and anyone who has faith in PayPal should have faith in eBay and buy.

Disclosure: no positions

Comments

[redbaron:]

It occurs to me that with credit card companies having increased trouble collecting payments from card holders that was just recently announced, that perhaps eBay might also have increased trouble with collecting payments made through the BillMeLater option. Credit card stocks are down, and that to me would seem to be a negative for eBay and BillMeLater. Why would eBay be immune from this trend?
IMHO

2008 Dec 31 07:02 AM

[john s. gordon:]

paypal may be cheaper for the buyer than a credit card @29% annually but their fees are still excessive.
> jack

2008 Dec 31 09:39 AM

[sstro:]

Paypal quick to take your money not so quick when it comes to paying it out.

2008 Dec 31 09:40 AM

[PastTense:]

When a large company like Walmart does a deal with Paypal they demand such low rates that there is very little profit left.

While Paypal is useful for eBay transactions and for payments to very small scale sellers, it has significant disadvantages for the buyer for transactions with normal ecommerce sellers--worse buyer protection and a more time-consuming transaction process than the credit card process.

2008 Dec 31 10:14 AM

[vpaul:]

"eBay reported that payment volume grew 12% for PayPal on eBay"

My opinion is because eBay will no longer allow checks, cash, moneyorders etc for payment. Also since eBay site sales are down, let's say fewer buyers, and they are required to use PayPal, I think this would account for the growth number. If eBay only sold 10 items and they all paid via PayPal, this would show 100%. Take away all the check, moneyorder, payments and the buyers that prefer to pay that way and the percentage of Paypal payments grows due to lost sales.

2008 Dec 31 10:35 AM

[Philip Cohen:]

eBay failed in their attempt to apply mandatory exclusive PayPal in Australia (the Australian Competition & Consumer Commission found it a restraint on competition); and eBay's current mandating of the offering of PayPal is also under attack here. We still have direct bank credit too. What's happened to the federal Office of Fair Trading in the US? Has eBay nobbled it?

2008 Dec 31 04:21 PM

[Gruntled Pa...:]

Paypal is NOT protecting the Buyer from Counterfeit goods seller. My wife purchased an UGG boots from fashionugg.com and it turns out to be counterfeit, despite the assurance from the seller. We informed Paypal about the case and they turned a blind eye about it. Paypal rep told us that unless we purchased the item from Ebay, they are Not going to offer the buyer purchase protection from the seller. They told us that as long as the Seller can provide a shipping tracking number, case is considered closed. They might as well send us an empty box with tracking and Paypal and Ebay happily pocketed their transaction fees. Caveat emptor, You are better off with your bank card for your purchases.

Jan 01 05:05 AM

[Joyful Alte...:]

PayPal is operating as an unregulated bank, and one of these days, the feds are going to notice. As sstro noted, a lot of people say they've had problems getting the money PayPal owes them.

Jan 01 09:03 PM

[antiquary:]

The "greater number of unique visitors" statistic is about the only one anyone uses these days when analyzing eBay in public. It's seriously misleading. Any longtime eBayer could tell you that listings and prices, the actual indicators of eBay's cash flow, are for the year down on a par with the S&P 500. The problem is that Donohoe has the economic downturn as cover for his profound mishandling of the company, which widely alienated sellers even before the worst of the downturn hit.

Expect deep losses at eBay.

Jan 03 09:37 AM

[antiquary:]

The "greater number of unique visitors" statistic is about the only one anyone uses these days when analyzing eBay in public. It's seriously misleading. Any longtime eBayer could tell you that listings and prices, the actual indicators of eBay's cash flow, are for the year down on a par with the S&P 500. The problem is that Donohoe has the economic downturn as cover for his profound mishandling of the company, which widely alienated sellers even before the worst of the downturn hit.

Expect deep losses at eBay.

Jan 03 09:37 AM

[Rigamortis:]

So.. John Donahoe.. thinks merchants are happy ??? with PAYPAL????.....

WHAT A LOAD OF CROCKOLA
IT'S HARD TO TELL WHO THE REAL SCOUNDRELS ARE.. THE SCAMMERS, EBAY OR PAYPAL... none the less... IT'S ALL THE SAME...

A HEAVE AND A HO... ITS TIME FOR JOHNNY BOY TO GOOO
AND NO PARACHUTE TO SOFTEN TO BLOW..

Jan 07 12:19 AM

[Rigamortis:]

As per your statement.. as being better off.... with your bank card for purchases......
TOTALLY AGREED... MATTER OF FACTLY.. ALL HAVE A BETTER CHANCE SENDING CASH THROUGH THE MAIL...
With Ecomonic times being as they are.. and things being scrutinized by the Government... it should make for an INTERESTING YEAR AHEAD... Maddoff is old news... time to turn the investigation light onto PAYPAL AND DUNGHO...


On Jan 01 05:05 AM Gruntled Paypal User wrote:

> Paypal is NOT protecting the Buyer from Counterfeit goods seller.
> My wife purchased an UGG boots from fashionugg.com and it
> turns out to be counterfeit, despite the assurance from the seller.
> We informed Paypal about the case and they turned a blind eye about
> it. Paypal rep told us that unless we purchased the item from Ebay,
> they are Not going to offer the buyer purchase protection from the
> seller. They told us that as long as the Seller can provide a shipping
> tracking number, case is considered closed. They might as well send
> us an empty box with tracking and Paypal and Ebay happily pocketed
> their transaction fees. Caveat emptor, You are better off with your
> bank card for your purchases.

Jan 07 12:28 AM

[Rigamortis:]

so true... think about the amount of interest they're collecting.. by holding other peoples monies.. while 'INVESTIGATING"... Would make for a wonderful headliner...
THAT'S A WHOLE LOTTA BANANAS... JUST ON THE INTEREST ALONE.. NEVER MIND FEES..


On Dec 31 09:40 AM sstro wrote:

> Paypal quick to take your money not so quick when it comes to paying
> it out.

Jan 07 12:32 AM

[Rigamortis:]

While your statement rings true in regards to the interest on credit cards. (and that's not even the higher percentage ones)... it's much harder to get your money back after you've been ripped off .. from Paypal.. then from a credit card...
at least the credit card companies will freeze the charge and THOROUGHLY INVESTIGATE... KEEPING THE CARD HOLDER INFORMED..
IT DOESN'T WORK THE SAME WAY WITH PAYPAL... THEIR RULES.. YOUR MONEY.. and Paypal answers to NO AGENCY.. NO COMMISIONS.. NOTHING.. NADA...
IF THEY FOLDED TOMORROW... THEY WOULD BE AN INCREDIBLE AMOUNT OF MONIES FLOATING... AROUND.. WITH NO SINGLE AGENCY .. TO REACH OUT TO FOR HELP... ON THE CONSUMERS BEHALF...



On Dec 31 09:39 AM john s. gordon wrote:

> paypal may be cheaper for the buyer than a credit card @29% annually
> but their fees are still excessive.

Jan 07 12:38 AM