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eBay’s Core Business Declines As PayPal Readies For Spin-off

Posted on Wednesday, May 6th 2015

The eBay (Nasdaq: EBAY)–PayPal spin off is nearing its time. During their last days together, PayPal has helped eBay deliver strong results. The rest of their business reported year-over-year decline, but the payment business continued to deliver strong performance.

eBay’s Financials

eBay’s first quarter revenues grew 4% over the year to $4.45 billion, ahead of the market’s projections of $4.43 billion. EPS of $0.77 was ahead of the Street’s estimated $0.70 for the quarter.

During the quarter, PayPal’s net total payment volume increased 18% to $61 billion, with Merchant Services volume increasing 26% and on-eBay volume reporting a decline of 1%. Revenues from PayPal increased 14% to $2.1 billion as PayPal added 3.6 million new active accounts in the quarter to end with 165 million accounts.

Marketplaces gross merchandise volume fell 2% with US GMV increasing 2% over the year and International GMV reducing 4% over the year. Revenues from the Marketplace segment fell 4% to $2.1 billion. The weakness in the marketplace segment was on account of a stronger US dollar and continuing recovery from the cyberattack on eBay site in May 2014 and the change in Google’s search algorithm. It is clear that eBay’s marketplace segment is continuing to reel under pressure from competitors like Amazon. According to a recent Channel Advisor report, Same Store Sales (SSS) for Amazon grew 23% over the year in the month of February compared with eBay’s growth of 5%.

For the current quarter, eBay projected revenues $4.4 billion-$4.5 billion with an EPS of $0.71-$0.73. The Street was looking for revenues of $4.58 billion with an EPS of $0.72. eBay expects to end the year with revenues of $18.35 billion-$18.85 billion with an EPS of $3.05-$3.15. The Street had forecast revenues of $18.96 billion with an EPS of $3.09.

eBay’s Acquisitions

During the last quarter, eBay announced two acquisitions to help grow PayPal. In March this year, they announced the acquisition of mobile payment startup Paydiant. Boston-based Paydiant was founded in 2010 to offer mobile wallet technology for retailers and companies and a mobile wallet platform for MCX – the consortium of retailers who are working to launch their own mobile app. Paydiant helps companies develop mobile apps to support their payment systems and offer enhancements such as the ability to create offers and loyalty programs. Their customers include names like Subway, Harris Teeter, Target, Walmart, and Capital One. The move will help PayPal compete more effectively with both Google Wallet and Apple Pay. Analysts estimate that the deal was worth $280 million.

To increase their security offerings, eBay also acquired CyActive, an Israel-based startup, for an estimated $60 million. CyActive’s products help predict how a malicious software will develop and thus offers companies detection and prevention capabilities. PayPal is working on setting up their own cyber security center in Israel. The acquisition will help them lay a foundation for the center.

Meanwhile, eBay is also investing in growing its marketplace segment. First, they are working on building a stronger, more resilient commerce platform. They are moving to become the world’s first online global marketplace to use structured, cataloged data at scale for all listings. They are also diversifying their sources of traffic and customer acquisition by leveraging the various social and messaging platforms. Finally, they are improving the marketplace by bringing in a more diverse inventory available at different price points.

eBay’s stock is trading at $59.11 with a market capitalization of $71.7 billion. It touched a 52-week high of $60.93 in March this year.

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