On Thursday, Paypal announced two new deals that should keep the eBay (EBAY) subsidiary ahead of the game in mobile payments. The ever increasing number of companies in the mobile payments field makes both announcements a big deal for shareholders of eBay's stock. Paypal continues to drive the company forward as its auction business takes the backseat.
The first deal announced by Paypal was a partnership with VeriFone (PAY). VeriFone will help bring Paypal to over a million new checkout lanes. VeriFone is already used by 80% of the biggest 200 retailers in the United States. The deal gives customers more control over payment options in the checkout lane. Customers can directly log in to their Paypal account to pay for items or use a Paypal card to purchase the same items. VeriFone remains a leader in the mPOS (mobile point of sale) technology market.
VeriFone entered into a similar deal with Google Wallet last year. The new deal with Paypal competes directly with the payment service launched by Google (GOOG). Back in April, VeriFone announced they had installed or updated 40,000 POS systems to accept the payment service by Google. Now customers will have another option when paying at stores that have VeriFone terminals. Paypal's biggest rival in the mobile payments game may be rising private company Square.
Square was founded by Jack Dorsey, who also founded Twitter. The company is raising money and could be valued at $4 billion in its next funding round, according to All Things Digital. The company processes $4 billion in annual transactions. Each transaction nets Square a processing fee. Square is pretty open about their fees with swipes getting the company 2.75% of the transactions, and keyed in debit transactions earn the company a $0.15 fee plus 3.5% of the sale.
The second deal that Paypal announced was a huge expansion into fifteen retail stores. The fifteen stores will all allow customers to use Paypal to pay for goods and services at checkout. The new stores added are:
- Abercrombie & Fitch
- Advance Auto Parts
- American Eagle
- Barnes & Noble
- Foot Locker
- Guitar Center
- Jamba Juice
- JC Penney
- Jos A Bank
- Nine West
- Office Depot
- Rooms to Go
- Tiger Direct
- Toys 'R' Us
Several of the retailers will roll out programs within the next couple of weeks. Paypal remains on track to be in twenty retailers by the end of 2012. The fifteen retailers add to Paypal's recent signing with Home Depot (HD). Back in February, all 2,000 plus Home Depot stores started allowing customers to use their Paypal account to pay for purchases at the home improvement warehouse.
A recent article by All Things Digital asked, "Is Google or Paypal Leading the Charge in Mobile Payments?" In the article, it lists Google Wallet being available at 140,000 locations, represented by 25 retailers. The article estimates that with its new deal Paypal will be available in 16,000 locations through 16 retailers. Google recently acquired TxVia to further its presence in the mobile payments field.
Paypal went public in 2001 at a valuation close to $800 million. The year before Paypal went public, they had $103.7 million in revenue. eBay did not wait long to snatch up the mobile payment leader by buying out the company in 2002. Paypal entered the mobile race in 2006 as one of the first entrants in the now vast field. Paypal had $118 billion in total payments throughout 2011. This year, the company is forecasting $7 billion in mobile payments alone.
The mobile payments field is heating up and will see lots of acquisition activity over the next couple of years. One of the key battling points amongst competitors is processing fees. Processing fees are the amount charged by the payment company.
- Pay Anywhere 2.69%
- Paypal 2.70%
- Square 2.75%
Key features from each company are also ways of attracting new customers to using each mobile payment process. Square has an application that makes a mobile phone act as a cash register. Rival Intuit's (INTU) Go Payment offers use of the company's Quickbooks software, perhaps luring small business owners. Paypal has the largest customer base of the mobile payment companies.
eBay shares are closing in on a fifty two week high. Shares were trading for $40.35 at the time of writing. The shares have traded as high as $41.96 in the last fifty two weeks. This was the highest share price for eBay shares since the beginning of 2006.
Analysts (Yahoo Finance) predict eBay to earn $0.55 in the current June quarter. For fiscal 2012, analysts are predicting $2.36 in earnings per share. The following year, analysts see the company earning $2.73 per share.
eBay has beat or matched earnings estimates each of the last four quarters. The company reports second quarter earnings on July 18th. Look for revised earnings estimates from the company as the Paypal brand will contribute even more to the earnings. eBay's auction and fixed price format sales beginning to increase. Paypal is the gem in eBay's portfolio and will continue to make shares of the company a good long term bet.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.