PayPal fuels higher eBay revenue even as cyber attack, rivals weigh

SAN FRANCISCO — EBay Inc posted a 13 percent rise in quarterly revenue on Wednesday, as better-than-expected results from its fast-growing PayPal division helped the online retailer overcome increasing competition from Amazon.com Inc and a well-publicized cyber attack.

Investors had been braced for a tough quarter.

Ebay’s stock has fallen more than 8 percent since April, hurt by the cyber attack disclosed in May that compromised data for some 145 million customers, the departure of highly regarded PayPal chief David Marcus, and intensifying competition from both online and offline rivals. 


EBay was also hurt by a change in Google Inc’s algorithm, which pushed eBay results lower in search rankings, slowing traffic.

That slowdown was seen in June in a measure of transactions across eBay’s core Marketplaces platform, known as gross merchandise value, with the growth rate falling to 7 percent from around a double-digit pace in previous months.

“We had a challenging first half of the year with several distractions,” Bob Swan, the chief financial officer, told analysts on a conference call, noting that the cyber attack and the Google search engine changes “had an immediate and dramatic impact.”

Executives said eBay will spend more on measures to entice users back, including coupons, seller incentives and increased marketing.

Several investment brokerages had downgraded their forecasts ahead of Wednesday’s results. The second-quarter results and eBay’s revenue outlook were roughly in line with those tempered expectations. Revenue rose to $4.37 billion for the quarter, compared with $3.88 billion a year ago; Wall Street had forecast revenue of $4.38 billion, on average.

Payment volume leaped a better-than-expected 29 percent. Gross merchandise value grew 12 percent, in line with or slightly better than analysts’ forecasts.

Going forward, eBay will have to grapple with stiffening competition across its businesses.

Marcus departed for Facebook’s messaging team in June. The payments service faces a growing challenge from the likes of Amazon, which launched a recurring payments program in June. Google is also expected to delve further into this field. Brick-and-mortar retailers are investing to boost their online presence. EBay also has to fend off a growing coterie of fast-growing retail upstarts that focus on specific categories such as home and apparel.

Longer term, industry analysts speculate that Chinese e-commerce giant Alibaba Group Holdings Ltd, which is going public this year in what could be the largest-ever tech IPO, is preparing to leverage its U.S. investments into a play for the U.S. retail arena, the world’s largest.

On Wednesday, eBay forecast third-quarter revenue of $4.3 billion to $4.4 billion, compared with expectations for $4.4 billion, according to Thomson Reuters I/B/E/S.

For the second quarter, it posted non-GAAP earnings per share of 69 cents, a penny better than forecasts for 68 cents.

source: interaksyon.com

Wall Street worries about PayPal’s real-world expansion

SAN FRANCISCO — Wall Street is having second thoughts about following PayPal from its online roots into the physical world.

PayPal, a leader online, launched a push in 2011 to become a payment option in brick-and-mortar stores. The move increases PayPal’s potential market by a factor of at least 10, and has been a big driver of the shares of owner eBay Inc, which surged 68 percent in 2012.

But ahead of an investor day meeting at eBay’s Silicon Valley headquarters on Thursday, some investors and analysts are beginning to worry that the initiative will sacrifice profit margins for growth.

“Profitability of on-site payment will be dramatically lower than it is online,” said Bill Smead of Smead Capital Management, an eBay shareholder who has been bullish on the company for several years. Smead’s Seattle-based firm has trimmed its eBay position twice in the past year.

“If it’s going to be a lot less profitable, PayPal may not expand there as much as previously thought,” he added. “I would look for eBay to address this at the investor day.”

An eBay spokesman declined to comment.

For the year, eBay’s stock is up 0.6 percent, lagging behind the Nasdaq Composite Index’s gain of 7.2 percent this year. Concern about lower profitability at PayPal has weighed on eBay’s stock.

“Margin expansion may take a back seat to growth,” Colin Sebastian, an analyst at R.W. Baird, wrote in a note previewing eBay’s investor day.

Beware of the digital wallet fee

This year, eBay has been trying to control Wall Street’s expectations for PayPal profitability. On January 16, the company said PayPal’s 2013 margin would be 24 percent, down from a previous forecast of 25 percent to 26 percent.

In a February 1 regulatory filing, eBay mentioned a new fee that MasterCard Inc plans to impose on “digital wallet” operators like PayPal, starting in June, and warned that such changes could increase PayPal’s costs and reduce profit margins.

“Any time you take a successful business and move it to other arenas, there’s great opportunity and risk,” said Richard Sichel, chief investment officer of Philadelphia Trust Co. “There’s lots of competition out there, and it’s too early to know what PayPal margins will settle down to be.”

If other payment networks follow MasterCard and impose a digital wallet fee on PayPal, that could shave 2 cents a share off eBay’s earnings each year, Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods, estimated recently.

Even without pressure from MasterCard and Visa, PayPal’s Point-of-Sale, or POS, business as it is known, will be less profitable than its online business, according to analysts.

PayPal has signed up several large retailers, including Home Depot, Toys ‘R’ Us and JC Penney, to accept PayPal in their stores. However, PayPal is taking a smaller cut of sales to persuade these retailers to test the service.

PayPal’s POS business is only 30 percent as profitable as its online business, Brian Nowak, an analyst at Nomura, estimated in a note previewing eBay’s investor day.

The bigger and potentially more expensive challenge will be to persuade consumers to drop their credit and debit cards in favor of PayPal when they shop in stores, Sebastian, Nowak and others say.

Nowak expects PayPal to develop a rewards program to give users some incentives, similar to the ones offered by big credit card companies like Capital One Financial, American Express and Discover Financial Services.

However, if PayPal offered something like that, its profit margin on offline transactions would go negative, Nowak estimated.

On Thursday, during eBay’s investor day, Nowak said he will be looking for the company to explain how PayPal can fund a rewards program and still turn a profit processing in-store payments.

Merchants could share in the cost of a PayPal rewards program, but this has its limits, Nowak said.

One of the reasons merchants are trying PayPal in the first place is that it is cheaper than what is currently offered by existing payment networks like Visa Inc and MasterCard, the analyst noted.

PayPal has not disclosed what it is charging brick-and-mortar retailers, but Nowak estimates that the company takes a cut of about 1.5 percent, compared with about 2 percent to 2.2 percent charged by Visa and MasterCard.

source: interaksyon.com

PayPal could heat up mobile payments race if McDonald’s test pays off

SAN FRANCISCO — PayPal is in the early stages of what may be a blockbuster mobile payments deal with McDonald’s Corp, the world’s biggest hamburger chain.

McDonald’s is testing a mobile payments service featuring PayPal at 30 of its restaurants in France. Earlier this year, McDonald’s ran demonstrations of a broader PayPal mobile payments service at its franchisee conference in Orlando, Florida.

A McDonald’s spokeswoman confirmed the France tests and said the PayPal demonstration at its conference was part of a booth that features “technology coming within the next 24 months or so.”

PayPal is racing against start-up Square Inc and other technology companies to become the mobile payments service of choice as consumers increasingly use smart phones to make purchases in shops, restaurants and other retail locations.

Square struck what could be its most important partnership to date last week when it teamed up with Starbucks Corp, the world’s largest coffee chain.

PayPal, owned by eBay Inc, has signed up more than 15 retailers, including Home Depot and Office Depot, to accept PayPal payments in their stores.

But landing a partner the size of McDonald’s, with over 30,000 restaurants, would be a big win, according to analysts.

“McDonald’s would certainly be a whale,” said Gil Luria, an analyst at Wedbush Securities. “If McDonald’s customers can stand in line and order on a mobile app and pay with PayPal that is a huge extension of PayPal’s reach.”

Square’s deal with Starbucks “creates a sense of urgency for PayPal,” he added. “This is a race.”

The test in France lets McDonald’s customers order food on smart phones through a McDonald’s mobile application, or online, and pay with PayPal. There is a separate line in the test locations to pick up the meals, according to a PayPal spokesman.

Demonstrations at the McDonald’s franchisee conference in Orlando featured a more “in-depth” service that would allow customers to order and pay using PayPal’s digital wallet and mobile application, the spokesman said.

Rolling out a service like this may help McDonald’s cut lines at restaurants, which is a key factor in maintaining and growing same-store sales, Luria said.

“If they can shave 10 seconds off wait times, same-store sales could go up a lot,” he added. “It’s substantial.”

source: interaksyon.com

PayPal lets shops take payments on smartphones

SAN FRANCISCO — PayPal Asia-Pacific chief Rupert Keeley said Friday the U.S. company plans to expand in the region over the next 12 to 18 months, after it launched the region’s first payments service for smartphones.

Australia and Hong Kong were the first countries in the region to have the new mobile system but Keeley said it would soon be available in other markets including mainland China, where the licensing process was under way.

“We’re delighted to be the first in Asia Pacific to offer this innovative mobile solution,” he said, noting that Asia had a $1.3 trillion small-medium business retail market combined with rapid uptake of smart phones.

“PayPal is going to change the way millions of merchants and consumers connect with each other in the Asia-Pacific region,” he said.

The online financial transactions company’s region headquarters is in Singapore but it serves many of its customers in the vast region remotely through a network of six sales offices, he said.

Keeley said PayPal was “looking to expand our footprint in Asia” with the opening of new offices in several countries, including India.

The company currently has six sales offices in the region, covering Tokyo, Shanghai, Hong Kong, Taipei, Singapore and Sydney. It has development centers in India and Singapore and customer support centers in China and Malaysia.

Keeley said Indonesia was another attractive market, but would not confirm if the archipelago of 240 million people was on PayPal’s list for expansion.

The new PayPal Here system will allow merchants in Australia, Canada, Hong Kong, the United Kingdom and the United States to take payments using smartphones.

It uses a triangle-shaped “dongle” card reader that plugs into mobile devices to let people make purchases with vendors on the run, including small businesses that do not have merchant accounts with traditional banks.

PayPal Here software also lets shopkeepers take payments by snapping a picture of a card with a smartphone instead of having to swipe it in the dongle.

In the United States the service from eBay-owned PayPal will rival one offered by startup Square, a brainchild of Twitter co-founder Jack Dorsey.

Square has been a hit with independent entrepreneurs and small businesses ranging from masseuses and taxi drivers to farmers and bicycle shops.

PayPal plans to capitalise on its dominant position as a global service for online purchases.

“We are going to aggressively push this out to our 100 million PayPal users around the world,” PayPal mobile vice president David Marcus said while unveiling the new service in San Francisco.

“We can accept any form of payment, short of barter.”

PayPal Here thumb-sized plug-ins and accompanying software for smartphones are free. Here was being rolled out for Apple’s iPhones with a promise that a version for Android-powered smartphones would be available soon.

PayPal will charge merchants a fee of around three percent for each transaction, depending on the market, Keeley said.

“It’s going to be a huge business for us,” he told reporters in Hong Kong.

source: japantoday.com