When eBay announced plans to take its processing business from PayPal to Ayden, Wall Street was tough on Pay Pal’s stock. The Street provides an analysis of Pay Pal’s recent quarterly financial announcement that suggests PayPal will survive the loss of eBay’s business. The Street’s analysis conveys:
PayPal shares were hit hard on Feb. 1 after eBay announced (in tandem with both companies’ Q4 reports) that it would gradually make an internal payments solution developed with payment-processor Ayden its “primary” payment option, following the expiration of its current operating agreement with PayPal in mid-2020. However, PayPal will remain an eBay payment option at least until 2023. PayPal got 13% of its payment volume from eBay in the fourth quarter, down from 16% a year earlier.
Although eBay will shift focus away from Pay Pal, this will allow Pay Pal to offer its services to other marketplaces, businesses it was previously restricted from approaching:
On the Q4 earnings call, CEO Dan Schulman said that PayPal will be free to offer (merchant of record) MOR services to “two of the largest and fastest-growing marketplaces out there that are really directly competitive with eBay,” once the operating agreement ends in 2020. The company declined to name the marketplaces, but there’s speculation that Amazon, whose marketplace sales have been booming, is one of them. In January 2017, Schulman mentioned that PayPal has held talks with Amazon, but there has been no news on that front since.
This analysis suggest that the eBay and PayPal split may have been the right decision for both parties.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group
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