) recently announced its Q1 2011 earnings, in which it
indicated significant year-on-year improvement in revenues and
total payment volume for PayPal. eBay's PayPal service competes
with Google (
) Checkout and credit card companies like
), Visa (
) and MasterCard (
). Here we note a few key emerging trends for PayPal.
PayPal constitutes around 21% of our
$32.74 price estimate for eBay's stock
. Our number is roughly in line with the stock's current market
Increasing Penetration of PayPal Services
eBay is seeking to compete more effectively with online
retailers like Amazon. Through its acquisition of GSI Commerce,
eBay hopes to enable merchants of all sizes to conduct e-commerce
through its PayPal platform. This move sparked increased
penetration for PayPal, as more and more merchants are accepting
PayPal services. Altogether, PayPal saw 16% year-on-year growth in
the number of users with PayPal accounts.
Lower Average Commission per Transaction
PayPal generally charges lower commission fees to merchants.
Therefore, average commission made by PayPal on each transaction
(the take rate) has been declining as more and more merchants
utilize PayPal's services. This effect is partially offset by
PayPal's international expansion, as it charges higher commissions
Total payments made through PayPal has been increasing
significantly. The bulk of this increase is driven by 38%
year-on-year growth in payments made for merchant services. This
growth is faster than that of user accounts on PayPal, indicating
that the average size of payments made through PayPal is increasing
You can drag the trend lines in the modifiable charts
above to see the impact of these trends on eBay's stock value.
See our full valuation analysis for eBay stock