Higher Payments Through PayPal to Benefit eBay

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The average payment size of each transaction on PayPal has declined slightly in the past two years, from around $68 in 2007 to $64 in 2009, [1] due in part to the slump in the economy.  However, we expect the payment size to increase going forward at a slow rate. PayPal is a global payment platform operated by eBay ( EBAY ) that enables secure, easy, quick, and cost-effective transfer of payments online. It competes with Google ( GOOG ) Checkout and Amazon ( AMZN ) Checkout.

PayPal generates revenue both from eBay's platforms, as well as from third party platforms. We currently have a Trefis price estimate of around $30 for eBay's stock , about 22% above the current market price of $24.

In the past, Average Payment Size on PayPal has increased from around $53 in 2003 to around $68 in 2007. The number of consumer purchases reduced in 2008 and 2009, owing to the weak economy.  While average payment sizes have generally been increasing over the last few years, the fraction of PayPal's Total Payment Volume (TPV) that is attributable to transactions conducted on eBay sites has declined from around 64% in 2006 to 44% in 2009. [2]  These trends together suggest that PayPal's average payment size may continue to increase as PayPal use becomes more prevalent off eBay sites.

The average of Trefis member forecasts for Average Payment Size on PayPal indicate an increase from $61.50 in 2010 to $68 by the end of the Trefis forecast period, compared to the baseline Trefis estimate of an increase from $62 in 2010 to $70 by the end of the Trefis forecast period. The member estimates imply a downside of 1% to the Trefis price estimate for eBay's stock.

You can drag the forecast trend-line above to express your own view, and see the sensitivity of Ebay's stock to Average Payment Size on PayPal.

Our complete analysis for eBay's stock is here .

Notes:
[1] Average Payment Size on PayPal is calculated as:
Total Payment Volume (TPV) / Total Number of payments on PayPal. Ebay reports TPV in its SEC filings and the number of payments on PayPal in its press release.
[2] Reported in eBay's SEC filings



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AMZN , EBAY , GOOG

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