As eBay Inc. and PayPal prepare to go their separate ways, a financial filing from the online marketplace sheds more light on its payment processing unit, including an operating margin that “slightly” exceeds the expectations of at least one investment firm.
The most recent annual report from eBay doesn’t answer every question about PayPal, scheduled to become its own company in the second half of 2015, with Dan Schulman, the current president of PayPal, set to take over as CEO of the standalone PayPal company. But the report does offer a few interesting crumbs about PayPal—more than appear in previous financial reports—and highlights some challenges it might face after it goes solo.
For one, its 21% operating margin “is slightly higher than our previous 20% estimate,” says Colin Sebastian, an e-commerce analyst who works for Robert W. Baird and Co., in a research note this week. The margin also should alleviate “some investor concerns that an independent PayPal would generate mid/high-teens margins.”
Additionally, he continues, the financial filing suggests that “PayPal is not as reliant on eBay’s marketplace for subsidizing user growth,” he writes. The annual report states that 26% of PayPal’s 2014 net TPV [total payment volume] “was attributable to transactions on eBay Marketplaces,” a figure that translates into $59.6 billion dollars. The filing defines net TPV as “as the total dollar volume of payments, net of payment reversals, successfully completed through our payments networks.”
The filing also gives a glimpse into the future of a standalone PayPal and eBay. For instance, the operating agreements listed in the U.S. Securities and Exchange document contain no exclusive relationships. That suggests eBay consumers could soon have more payment choices like Google Wallet and Apple Pay in addition to PayPal, Sebastian notes.
Active users of eBay’s payment services, which include consumers with PayPal and Bill Me Later accounts, totaled 162 million at the end of 2014, up 13%, a point previously made in eBay’s Q4 earnings report. PayPal gained 4.6 million new users in the fourth quarter of 2014.
EBay also disclosed in the filing:
• Depending on the country or market, and the payment provider, PayPal competitors may “be subject to less burdensome licensing, anti-money laundering, counter-terrorist financing, and other regulatory requirements than PayPal.” The filing goes on to say that: “Competing services tied to established banks and other financial institutions may offer greater liquidity and engender greater consumer confidence in the safety and efficacy of their services than PayPal. In addition, in certain countries, such as Germany, Netherlands and Australia, electronic funds transfer is a leading method of payment for both online and offline transactions.”
• For the full year 2014, eBay’s payments transaction losses (including direct losses and buyer protection payouts) totaled $465 million, representing 0.2% of the company’s net total payment volume.
• For the full year 2014, about 49% of PayPal’s net TPV was from outside the United States.
• Also in 2014, PayPal’s net TPV for transactions using mobile devices exceeded $45 billion, “of which approximately 44% was from eBay Marketplaces.”
• The PayPal site “has suffered intermittent unavailability for periods as long as 12 days, including, for example, transaction failures which affected some customers in the U.K. for over 24 hours in August 2014 and mobile login failures which affected some customers for several hours in April 2014.”
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