eBay (EBAY) has recently announced that it will be changing PayPal (PYPL) for Adyen as its primary payments provider. This is understandably generating concerns among investors in PayPal, and shares of the digital payments provider are down by nearly 15% over the past few days. Is the separation from eBay a reason to sell PayPal or a buying opportunity?
How Important Is eBay For PayPal?
eBay purchased PayPal in 2002, and both companies were separated via a spin-off in July of 2015. Due to this close historical relationship, PayPal and eBay are closely related in investors’ minds. However, a deeper look at recent numbers indicates that losing eBay is important, but not a game changer for PayPal at this stage.
According to management statements during PayPal’s most recent earnings conference call, volume associated with eBay represented 13% of the total payment volume during the fourth quarter of 2017, compared to 16% for the fourth quarter of 2016, and 19% two years ago.
This means that eBay accounts for a sizeable share of total volume for PayPal, but that share is consistently declining in the past several years. Besides, it’s not just about the percentage of payment volume coming from eBay, but what kind of impact it has on PayPal’s revenue growth rates is even more important.
Total revenue for PayPal was above $13 billion in 2017, growing by 21% on a currency neutral basis. Revenue related to eBay market places grew 7%, while PayPal’s merchants’ service revenue grew by a much larger 24%.
In a nutshell, PayPal’s merchants service revenue is growing at more than three times the rate of growth the company is getting from eBay. Measured in terms of contribution to revenue growth, eBay is not really a big growth engine for PayPal.
Besides, the current agreement between PayPal and eBay will remain in place until July of 2020. By that date, chances are that eBay will account for an even smaller share of PayPal’s total buisness and growth opportunities.
