eBay's 4Q14 earnings: A mixed performance that keeps it afloat (Part 3 of 10)
Strong account and transaction growth drive PayPal’s revenues up
PayPal had a great quarter and a strong close-to-excellent year. PayPal’s revenue was up 18% on an FX-neutral basis, to $2.2 billion. It achieved quarterly revenues of more than $2 billion for the first time. This increase was driven by strong account growth and transaction growth, partially offset by a 3% sequential growth deceleration on eBay’s (EBAY) platform.
More than 50% of PayPal’s revenues came from outside the United States. Total active accounts growth was 13%, with rising engagement per account. Merchant Services’ total payments volume (or TPV) grew 36% on an FX-neutral basis in Q4.
Throughout the holiday season, PayPal drove strong consumer engagement, adding nearly 5 million active accounts and processing record payments volume. PayPal enables merchants to grow their businesses and offers product choices and flexibility to its consumers.
Transaction margins remained well above the 60% level driven by expansion of eBay, growth of large merchants, and acceleration of Braintree growth with merchants and consumers. Transaction margin is the transaction fees that PayPal charges for executing customers’ transactions on its platform.
PayPal’s segment margins declined by 3.7% to 22%. The decline was due to increased investments in the growth of Braintree, product innovation, brand promotion, and costs associated with one-time regulatory matters.
Role of Dan Schulman in PayPal’s progress
In the fourth quarter of 2014, Dan Schulman joined PayPal as its president and CEO (chief executive officer) designee. In eBay’s earnings call, management stated that Schulman is “providing strong, focused leadership on 2015 priorities and on positioning PayPal for continued competitive success.”
In 4Q14, PayPal’s One Touch continued its international expansion effort. With One Touch, users can pay across their favorite apps in a single touch on any platform, eliminating the need for entering user names and passwords each time.
PayPal also extended its credit offerings and added installment payment options for both consumers and merchants. It also launched PayPal Working Capital in Australia and the United Kingdom, offering merchants more convenient ways to invest in and grow their businesses.
Management believes that in this rapidly changing global payments environment, PayPal is positioned well to leverage its global footprint, digital payments leadership, and unique competitive strengths.
Competition in mobile payments market increasing
Meanwhile, Apple (AAPL) introduced Apple Pay in 3Q14, which poses great competition to PayPal. Apple Pay is the mobile payment system that involves placing a finger on the Touch ID of an iPhone to authenticate transactions.
Startups such as Square and Stripe are also emerging as potential threats to PayPal. Stripe has partnered with both Twitter Inc. (TWTR) and Facebook, Inc. (FB) to allow users to purchase goods directly from the social network sites. Learn more by reading Why Stripe has emerged as a competitive threat to PayPal.
According to a recent report from eMarketer and as the above chart shows, mobile payment transactions in the United States are expected to more than double, from $1.6 billion in 2013 to $3.5 billion in 2014. The report expects this market to grow at a healthy rate for the foreseeable future.
For portfolio exposure to eBay, investors can consider an ETF such as the Dow Jones Internet Index Fund (FDN). This ETF has about 5.3% of its portfolio invested in eBay.
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