PayPal Unit Helps Lift eBay Revenue
By MIKE ISAAC
New York Times
APRIL 22, 2015
EBay is speeding toward a split of its online marketplace and payments businesses into two companies. For some analysts and investors, that day cannot come soon enough.
EBay on Wednesday reported earnings of $626 million for the quarter that ended March 31, swinging back to profitability after a $2.32 billion loss in the same period a year ago that included a hefty one-time tax charge. Excluding the tax charge, the company’s income grew 4.8 percent from a year ago. Revenue rose 4 percent, to $4.45 billion, surpassing analysts’ estimates of $4.42 billion.
The results illustrate a divergence in eBay’s two businesses. Sales in the company’s marketplace business fell 4 percent to $2.07 billion from a year ago, a lackluster showing that continued the trend of declining e-commerce growth over the past four quarters. It is the unit’s first year-over-year revenue drop since 2009, following the global financial crisis.
In contrast, the company’s PayPal electronic payments unit posted revenue of $2.1 billion, up 14 percent from $1.845 billion a year ago.
EBay's stock activity over the last six months.
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The earnings are a progress marker for eBay as it divides into two parts this year. The separation was a change in strategy from what John Donahoe, eBay’s chief executive, had described as his vision for the company in the past. Only recently has eBay started to give details on what the split will look like for the two businesses.
EBay has shuffled its top management; Mr. Donahoe will step down as chief executive. Devin Wenig, who has led eBay Marketplaces for the past three years, will be the chief executive of that business. Dan Schulman, a former American Express executive, will lead PayPal after the split.
With the separation, the company is also cutting 2,400 positions, or 7 percent of its global work force. EBay has also said it would explore a sale or a possible initial public offering of eBay Enterprise, the warehouse and logistics unit for third-party sellers.
A split may leave the marketplace business particularly vulnerable. For months, executives have pointed to problems with Google’s search algorithms and fallout from a huge security breach as reasons for weak e-commerce momentum. Analysts are eager to see positive results.
“The marketplace business has been struggling for the last four or five quarters,” said Mark Mahaney, an analyst at RBC Capital Markets. “What are some of the initiatives to reinvigorate growth?”
Part of the challenge for the company, which helped pioneer e-commerce, is how it can stay current as an online destination as companies like Amazon, Apple and the Asian retail giant Alibaba continue crowding the field.
PayPal is still growing, fueled by high-performing assets like Braintree and Venmo, which are mobile-focused payments divisions that eBay acquired in recent years. Venmo, Mr. Donahoe has said, is enormously popular with young audiences. Braintree is angling to reinvent PayPal’s payments business to be easier to use on mobile devices.
But there is wariness that such growth will not come soon enough, especially as large companies like Apple, as well as payments start-ups like Stripe and Adyen, continue to gain market share.
“PayPal’s payments growth has been consistent for years,” said Robert Peck, an analyst at SunTrust Robinson Humphrey. “But will that start to crack?”\
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