Q2 Predictions for PayPal
PayPal had a great Q2, adding three more airlines, launching mobile-payments with Sprint Nextel, gaining access to two major PSP's with 18,000 combined merchants, introducing PayPal Pay Later across all EBAY listings, pursuing innovative promotions, and celebrating its 10th year anniversary. So what growth can we expect in Q1?
PayPal Merchant Services continues to make huge strides in signing up new merchants and capturing a larger share of merchant payments. At the same time, as PayPal Merchant Services becomes more ubiquitous across merchants, the more e-commerce growth as a whole (estimated at 17% in 2008) weighs on the division. After three consecutive quarters of greater than 60% Y/Y growth in TPV, I expect the Merchant Services to slow to 55% Y/Y growth in Q2.
On-EBAY TPV is the wild card in Q2. If my 14% Y/Y growth in Marketplaces GMV for Q2 is correct, the effect on PayPal's on-EBAY TPV is staggering. Because of increasing PayPal penetration across EBAY Marketplaces around the world, my estimate would result in a 22% Y/Y increase in PayPal's on-EBAY TPV. To put this perspective, it would be the highest on-EBAY TPV growth in 6 quarters.
Putting both of these together and doing the math, I expect overall PayPal TPV to grow by 36% Y/Y in Q2. And just like in Q1, I expect revenue growth will lag TPV growth by roughly 1% due to continued erosion in PayPal's take-rate (as a result of payment funding mix).
I therefore predict record PayPal revenue of $613 million for Q2 2008, a growth rate of 35 Y/Y. If correct, this would represent another all-time record quarter for PayPal and a substantial acceleration in growth from Q1.
Q2 Predictions for Marketplaces
It's been another eventful quarter for EBAY Marketplaces that has included new efforts to promote cross-border trade, the launch of EBAY Partner Network, the culling of Live Auctions, a legal tangle with craigslist, new buy.com partnership models, testing of buyer reward programs, controversy in Australia, integration of PayPal Pay Later, and a partnership with Microsoft Cashback. So what top-line growth can we expect in Q2?
Analysts expect EBAY listings grew by over 25% Y/Y in Q2 driven by lower listing fees. I think this will be coupled by a hit to conversion rates of approximately 7.5% Y/Y and a hit to ASP mix of roughly 5.0% Y/Y. This yields approximately 10.0% Y/Y organic growth in GMV. Adding 4.0% of Y/Y growth from FX benefits, we get overall GMV growth of approximately 14.0%.
But as we know from previous quarters, revenue is growing faster than GMV because of the relative outperformance of non-GMV businesses including classifieds and advertising. Taking into account a modestly lower take-rate on GMV and using previous quarters as a guide, we can expect an additional 5% of Y/Y growth, bringing Marketplaces' Y/Y revenue growth to about 19.0%.
I therefore predict record Marketplaces revenue of $1.536 billion for Q2 2008, a growth rate of 19.0% Y/Y. If correct, this would represent another all-time record quarter for EBAY Marketplaces.
Q2 Predictions for Skype
It's been another busy quarter at Skype that has included extended partnerships, problems with the FCC, an appearance on the iPhone, unlimited overseas calling plans, a new mobile beta, envious competition, and a controversial Skype 4.0 beta preview. But now that we have concluded Q2, what about Skype's financial performance?
Q2 is always Skype's weakest quarter, and with Q1 already disappointing, I'm not expecting any earth-shattering performances. Just like last year, peak concurrent users stayed roughly flat throughout the quarter (at around 12.4 million). This compares with an average of around 11.8 million peak concurrent users in Q1 and would therefore represents approximately 5% Q/Q growth.
Assuming flat revenue per concurrent user and adding 2% of Q/Q growth from a depreciating USD, we get revenue growth of approximately 7% Q/Q.
I therefore predict record Skype revenue of $135 million for Q2 2008, a growth rate of 50.0% Y/Y (or 7.0% Q/Q). If correct, this would represent another all-time record quarter for Skype although it would represent yet another quarter of quickly decelerating growth.
