) plans to cut 325 jobs at its PayPal business unit in order to
reduce operational costs. This layoff is an attempt by the
company to optimize its cost structure and thereby improve its
The workforce reduction will be conducted primarily in
PayPal's product and technology organizations. Management is
looking to consolidate its nine product divisions into one large
group and will also end relationships with approximately 120
Along with other unspecified operational changes, the company
will incur a pretax restructuring charge of approximately $15
million in the fourth quarter.
We believe that eBay's existing payment platform, PayPal has
done very well in the last few years. To continue its strong
global growth momentum and increase its market share, PayPal
needs to refine its cost structure. In the last quarter, Paypal
continued to be the star performer, generating total payment
volume (TPV) growth of 2.1% and 20.1%, respectively from the
previous and year-ago quarters.
We believe a leaner cost structure will boost margins and
earnings growth in the near future.
eBay is one of the largest online retailers in the world and
appears well positioned to grow through strategic acquisitions.
The restructuring announcement came a few days after eBay
reported strong third-quarter 2012 earnings.
The company's earnings of 49 cents exceeded the Zacks
Consensus by 3 cents, helped by a significantly lower tax rate.
Sales of $3.40 billion were flat sequentially and up 14.8% year
over year, and at the high end of the company's guidance range of
We remain concerned about the increasing competition from
major online retailers such as
) as well as many other smaller players. Additionally,
) has been making some plays in the online retail space that
potentially increase competition for the company. While eBay's
payments business shows great promise and innovation has been
very strong here, competition is not far behind.
Currently, eBay shares carry a Zacks #2 Rank, indicating a
short-term Buy rating.
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