How could Google, Amazon, Facebook and others hurt eBay’s PayPal business?

eBay’s PayPal is an online payment processing platform that makes money by charging sellers of merchandise and services a ~4% “take rate” based on the transaction value.  The growth of the business depends on the number of users transacting on PayPal, the average payment size and PayPal’s ability to charge sellers a competitive rate.  We estimate that PayPal constitutes 24% of the $32.94 per share Trefis price for eBay.

PayPal transactions represent a mix of purchases related to eBay marketplaces (on-eBay transactions) and exchanges by third-party buyers and sellers (off-eBay transactions).  Competitive pressure from alternative payment platforms such as Google Checkout, Checkout by Amazon and speculated entrants into the payments processing business such as Facebook, Twitter and Apple (with an iPhone payments platform) could result in off-eBay transactions growing slower than we currently believe.  In response to competition, PayPal is likely to reduce its take rate which could result in transaction increases both on and off-eBay.

Although PayPal’s Payment Take Rate has increased from 3.6% in 2005 to 3.9% in 2008, we believe that competitive pressure will cause the trend to reverse, resulting in a take rate of 3.7% by the end of the forecast period.

Within eBay’s content on our platform, you can see how eBay’s stock price would be impacted if PayPal’s Payment Take Rate were to decline faster than the Trefis forecast.