After announcing plans to change it payments processor and providing a positive prediction for future revenues, eBay Inc. shares soared to a record high.
Unfortunately, the same cannot be said for eBay’s long-time business partner PayPal Holdings Inc., whose shares tumbled after eBay revealed it would be switching to using the Netherlands-based global payment company Adyen BV.
Currently, merchants who sell on eBay’s marketplace must utilize PayPal accounts to accept payments. Although, at least through July 2023 Shoppers will have the option of using PayPal to checkout, starting this year in North America, Ayden will gradually take over the processing of eBay’s payments, and by 2021 handle the majority of its transactions.
According to Bloomberg News, “EBay said the shift will result in lower payment processing costs for merchants selling on the platform and greater options for buyers. Adyen accepts payments in 150 currencies. PayPal could see a big blow to its total payments volume. Shoppers purchased $24.4 billion in goods on EBay properties in the final quarter of 2017. Analysts had largely expected the agreement to continue, and there will be concerns about total payment volume going forward despite EBay becoming a smaller portion of that number over the past few quarters. PayPal hasn’t provided analysts with much color on the impact yet.”
An analyst at D.A. Davidson & Co., Gil Luria told Bloomberg, “EBay’s decision to reduce PayPal’s prominence represents a major setback for PayPal. Although the share of revenue from EBay has diminished over the years, the share of profit is far more substantial due to the terms of the spinoff. Furthermore, the possible deal to add Adyen more prominently helps propel Adyen to a much more meaningful competitive position.”
On Thursday, February 1, eBay increased 14 percent, the biggest single day jump since October 2015, to reach a record high of $46.22. Meanwhile, PayPal hit $78.08, which was a fall of 8.5 percent.
Many investors were shocked by the split, since PayPal has played a key part in processing eBay payments and offering shoppers credit to buy products for a decade and a half.
Spokeswoman for PayPal Amanda Miller said, “The planned evolution of our relationship with EBay is consistent with our strategic direction and growth opportunities and does not alter our financial guidance.”
Bloomberg reports, “PayPal separated from EBay in 2015 to concentrate on expanding its electronic transactions business without being shackled to the slow-growing online marketplace. The separation included an agreement that EBay would continue to use PayPal to process payments on the site. EBay purchased PayPal in 2002 and phased out its own competing payments service at the time. PayPal said total payment volume rose in the fourth quarter as active customer accounts hit 227 million. Earnings excluding some costs were 55 cents a share, compared with the average forecast for 52 cents. In its earnings report Wednesday, EBay said gross merchandise volume, a key metric of the value of goods sold on the site, rose 10 percent to $24.4 billion in the fourth quarter, as the number of active buyers on the platform increased.”
By Charles Bernstein