eBay Watch: Q1 Predictions for PayPal and Skype

Q1 Predictions for PayPal

PayPal had another record quarter, signing up new accounts, pursuing innovative promotions, increasing existing merchant penetration, and benefiting from strong cross-border trade. PayPal even managed to complete the acquisition of Fraud Sciences. So what growth can we expect in Q1?

Well, just this past Friday, Scot Wingo (CEO of ChannelAdvisor) stated that they were seeing very little, if any, broad macro-economic weakness in the 3rd party sales channel. This echoes a statement two weeks ago by PayPal CEO Scott Thomson that PayPal had not seen any signs of a slowdown in online business. So as far as PayPal Merchant Services is concerned, it is fair to expect another quarter of 60%+ Y/Y growth in TPV.

The more difficult estimate is on-EBAY TPV. PayPal is clearly a benefactor of eBay's (EBAY) recent fee structure and policy changes. Not only is the reduction in eBay take-rate absorbed exclusively by the Marketplaces division but some policy changes have required higher PayPal adoption across a variety of listing types. Based on accelerating growth in GMV and a slight jump in PayPal penetration, I expect we will see 20% Y/Y growth in TPV.

Putting both of these together, I expect overall PayPal TPV to grow by 35% Y/Y. Taking TPV growth as a proxy for revenue growth, I therefore predict PayPal revenue of $593 million for Q1 2008, a growth rate of 35% Y/Y. If correct, this would represent a fourth consecutive quarter of accelerating growth at PayPal.

Q1 Predictions for Skype

It's been another busy quarter at Skype that has included improved To Go services, a new CEO, a partnership with Oprah, and the prospect of Skype on the iPhone. But with the passing of the last day of Q1, what about Skype's financial performance?

Skype had a strong quarter, starting at just under 11 million peak concurrent users, and ending at around 12.5 peak concurrent users. This would yield a 13.6% Q/Q growth rate in peak concurrent users, the highest Q/Q rate jump since Q4 2006. Even if we take the conservative assumption that Skype's local revenue per concurrent user has remained flat, and only add 2% of Q/Q growth from a depreciating USD, we still get revenue growth of approximately 15.6% Q/Q.

I therefore predict Skype revenue of $133 million for Q1 2008, a growth rate of 68% Y/Y (or 15.6% Q/Q).

For completeness sake (since I update it every quarter), at $133 million of Q1 revenue, Skype's annualized revenue is up to around $532 million. Given eBay's all-inclusive consideration for Skype totalled $3 billion, this results in about a 5.6x revenue multiple. This is still arguably high but continues to drop fast with every passing quarter.

Comments

[Socialism c...:]

"PayPal is clearly a benefactor of eBay's (EBAY) recent fee structure and policy changes."

Um, did you mean "benefactee"?

And...you mention several times that you expect xyz% growth rate. Tell us how you arrive at that rate.

Finally...why are you an anonymous author? Name and face? And how about disclosure? Do you own eBay? Are you short eBay? We'd like to know. Thanks.

2008 Apr 01 12:52 PM

[Dinah Balk:]

Yes, Paypal's profits are up because eBay used mafia style tactics to force sellers into using Paypal. Floating seller's funds for 21 days also made a significant contribution to Paypal's coffers.

But I suspect this will only last about as long as it takes for the first seller to file a class action suit against both eBay & Paypal.

Goodbye Paypal - a victim of your own greed.

2008 Apr 01 06:16 PM

[Et tu, Brute!:]

I have been (I will be completely gone by May !) a seller on ebay using Payal over 4 years now and UNFAILINGLY whenever I transfer money to my personal bank account from Paypal, or from Paypayl to my personal bank account it takes 9 - 10 days. With my Amzazon account, which I have been selling through longer, it takes only 4 - 5 days. This is a common time frame with any funding transfers. Paypal, flying below the banking rules radar, makes a fortune in interest off this floating of funds that is NOT theirs to profit from in the first place. And I am not alone in this, it's typical of Paypals transfer ethic.

Yes, it is time for an accounting indeed!

2008 Apr 01 08:34 PM

[Network Effect:]

people seem to finally be realizing the power of PayPal and Skype. some day eBay's stock is going up like a rocket again.

2008 Apr 01 09:41 PM

[leapingcat:]

Paypal should continue to grow steadily, its ease of use balances the high fees. However, it would be unwise to put too much weight on Ebay's contribution. The recent and projected growth in TPVs is a result of fee hikes rather than growth; in fact the continual ebay changes are already putting off buyers and sellers. Paypal should of course not lose out much as most of the alternatives offer it, so perhaps there is a case for hiving off Paypal and letting it realise its true value.

2008 Apr 02 08:35 AM