eBay ( EBAY ) 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 ( GOOG ) Checkout and credit card companies like American Express ( AXP ), Visa ( V ) and MasterCard ( MA ). 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 price.
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 abroad.
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 as well.
You can drag the trend lines in the modifiable charts above to see the impact of these trends on eBay's stock value.