eBay Aims to Expand PayPal Significantly

According to a Forrester report, online retail sales in the U.S. are projected to grow annually at 10% from $231 billion this year to $370 billion by 2017. Despite the continuing slowdown in European economies, the researcher expects the market to pick up as well as online retail sales grow from $165.6 billion during the current year to $247.1 billion by 2017, translating to an annual growth rate of 10.5%. Forrester believes that the growth of online retail is attributed to the increasing adoption of mobile devices such as smartphones and tablets.

eBay’s Financials
eBay’s (Nasdaq: EBAY) Q1 revenues grew 18% over the year to $3.75 billion, falling short of the Street’s expectations of $3.77 billion. The revenue miss was attributed to the slowing down of PayPal’s growth driven by the weak European currencies and continued economic slowdown. During the quarter, PayPal reported an 18% increase in revenues compared with 32% growth recorded a year ago. EPS of $0.63 was marginally higher than the Street’s target of $0.62 for the quarter.

By segment, revenues from the marketplaces segment grew 13% to $1.96 billion, with general merchandise volume in the U.S. growing 16% to $7.36 billion. Paypal accounted for $1.55 billion in revenues and saw an addition of 5 million registered users, ending the quarter with 128 million subscribers. The total value of transactions processed on PayPal grew 21% to $41 billion. Mobile devices continued to see strong adoption as they added more than 2.8 million new mobile device users to eBay and Paypal.

For the current quarter, eBay predicted revenues of $3.8 billion-$3.9 billion with EPS of $0.61-$0.63. The projections missed the market’s forecast of revenues of $3. 95 billion and earnings of $0.66 per share for the quarter.

PayPal’s Growth
eBay plans to renew PayPal’s slowing growth rate with increasing the push into the retail initiative. According to researchers, PayPal is expected to grow their retail payment business to $750 million in revenues by the year 2015. PayPal is already driving strong growth in the segment through several tie-ups. Last quarter, they tied up with Discover Financial Services to enable PayPal payments to be accepted wherever Discover cards are accepted. The service will be available during the current quarter.

They also tied up with retailers like Home Depot so that customers can use their PayPal accounts to make payments at the stores. Now, PayPal is tying up with point of sales terminal manufacturers such as Verifone and Equinox and electronic cash register software companies like Shopkeep to go further expand their retail reach.

Last quarter, eBay also integrated PayPal into LG Electronics’ smart TV platform so that users will have access to a simple and safe way to shop through their Internet-connected TV. The service is available in the U.S., Canada, and the U.K.

Earlier this month, PaypaP also announced the acquisition of Iron Pearl, a Silicon Valley ‘growth hacker’. Growth hackers are organizations that promote viral spread of products and services on the Net. Iron Pearl’s services offer a sustained growth and customer retention for products and services and further provide analytic and optimization tools that help in monitoring user engagement and product stickiness. Their services are used mostly by startups to enhance their growth curves. Through the acquisition, PayPal plans to improve user engagement and harness new growth channels to expand customer base.

Their stock is trading at $51.63 with a market capitalization of $66.86 billion. It touched a 52-week high of $58.04 earlier this month.