Rise in User Accounts Drives PayPal’s Contribution to eBay Stock Value

by Trefis Team
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eBay (NASDAQ:EBAY) competes with other e-commerce sites like Amazon (NASDAQ:AMZN), Wal-Mart (NYSE:WMT), Overstock (NASDAQ:OSTK), and Blue Nile (NASDAQ:NILE) through through its online marketplace, ebay.com, where buyers and sellers can transact in a variety of products including clothing, electronics, media, collectibles, automobiles and many other types of merchandise.

eBay also makes money through its global payments platform PayPal, which enables secure, easy, and cost-effective transfer of payments online. eBay’s PayPal service competes with Google (NASDAQ:GOOG) Checkout and credit card companies like American Express (NYSE:AXP), Visa (NYSE:V) and MasterCard (NYSE:MA).

We currently maintain a price estimate of $32.81 for Ebay’s stock, slightly above the market price of $31.50.

Stupendous Growth in Number of PayPal Accounts

The number of PayPal accounts has risen from 23.6 million in 2005 to 94.4 million in 2010, representing a growth rate of around 30% annually. The growth is a reflection of eBay’s concerted efforts to integrate PayPal into its “Marketplaces” segment and forge strategic relationships with a diversified group of leading online commerce portals like Blue Nile. We anticipate that PayPal will continue to see double digit growth in the number of accounts on its platform.

In line with its customer account growth, PayPal is witnessing corresponding growth in its total payment volumes (TPV). eBay actually contributes a hefty proportion of PayPal’s TPV (40% as of 2009), and this is likely to increase as eBay further integrates PayPal into its adjacent marketplace platforms like Shopping.com and Rent.com. In addition, eBay’s focus on buyer protection programs will expand customer adoption of the service.

PayPal’s penetration into third-party platforms is also increasing. PayPal has already forged relationships with leading e-commerce websites like Blue Nile, Southwest Airlines, Barnes & Noble, and Toys R US.

Given the rising growth in the number of PayPal accounts, we pose the following question….

What Percent of Ebay’s Stock Value Comes from PayPal?

A) 12%

B) 21%

C) 35%

D) 46%

Click a response above to see the answer

See our full analysis and $32.81 price estimate for Ebay

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