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Why eBay’s investing heavily in Paypal to ward off competition

Puneet Sikka

eBay shows strong growth but the competition is rising (Part 6 of 8)

(Continued from Part 5)

Paypal is a faster-growing business for eBay than Marketplace

Paypal is a fast-growing business for eBay (EBAY), and its net revenues increased from $1.55 billion in Q1 2013 to $1.85 billion at a growth rate of 20%. Total active accounts for Paypal increased 16%, while the total payment volume (TPV) increased 26%. eBay said that this increase was primarily driven by the addition of Braintree, continued expansion of PayPal on merchant sites around the world, and a 200 basis point increase in PayPal penetration on eBay. In comparison, eBay’s Marketplace revenues increased slowly from $1.96 billion to $2.16 billion at a growth rate of 9%.

Paypal facing competitive pressures

Although Paypal is a dominant player in the payments processing market, it has started to face more competition in this market. Google (GOOG) Wallet is a mobile payment system that allows its users to store credit and debit cards and make payments by simply tapping their mobile phones on any Paypass terminal at checkout through the use of near-field communication (or NFC) technology. Then there’s Isis. Isis is a joint venture between AT&T (T), Verizon (VZ), and T-Mobile (TMUS) that was announced in November 2010. This system is also based on NFC technology.

Facebook (FB) is planning to come up with its own electronic money service, similar to that of Paypal. Facebook could integrate this payment platform with advertisers websites’ to process purchases. Facebook has a large enough user base with its monthly active users in excess of 1.3 billion. So Facebook could be a potential threat to Paypal’s dominance in the payments market.

eBay to continue investing in Paypal

During the conference call to announce Q1 earnings, eBay’s management said that it’s going to increase its investment in marketing Paypal. Management commented, “We didn’t really do much in Q1, but we will be launching our and announcing our new brand campaign and you’ll begin to see us over the coming quarters increase our level of investment in PayPal marketing and you’ll hear more very soon about some of the specifics of it. We’re going to do it in the same kind of softer (ph) way we have before, not big splashy big bang, but using digital marketing channels and selective TV and seeing how the business responds. So, we think that’s raising PayPal’s unaided awareness as something that marketing can help facilitate.”

Continue to Part 7

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