This year is already proving to be PayPal’s.
While eBay (EBAY) reported a first-quarter loss of $2.3 billion this week due to a $3 billion tax charge on foreign earnings, revenue climbed 14 percent year-over-year to $4.26 billion in part because of PayPal. The thriving payments business that eBay purchased over a decade ago saw revenue climb 19 percent to $1.85 billion, making up about 43 percent of eBay’s total revenue. PayPal also gained 5.8 million new active registered accounts during the quarter, bringing the total 148 million.
Since eBay purchased it for $1.3 billion in 2002, PayPal has become the fastest growing of the company’s main business units. Earlier this year, PayPal also became the subject of a proxy fight between eBay and billionaire activist investor Carl Icahn, who owns nearly 2 percent of eBay’s shares. Icahn repeatedly called for a PayPal spin-off, a move he argued would help the payments business expedite its already rapid growth and help eBay’s investors. In April, eBay struck a deal with Icahn to drop his spin-off proposal. As part of the agreement eBay added David Dorman, founding partner of Centerview Capital Technology, to its board.
While Icahn has a track record of causing public tussles — he urged Apple to pay more money to shareholders late last year — his exchange with eBay highlights PayPal’s value. For his part, eBay’s CEO John Donahoe has repeatedly said he expects PayPal revenues to surpass those of Marketplaces — eBay’s stalwart core business — within the next two to four years. It certainly seems that way given PayPal’s year-over-year growth.
Yet while eBay may seemingly stand to benefit more from PayPal than the other way around, their relationship remains more mutually beneficial than some might think.
During the company’s fourth quarter in 2013, eBay directly contributed one-third of PayPal’s new active accounts thanks to increasing integration of PayPal in eBay’s web and mobile services. And according to Donahoe, roughly 50% of eBay’s profit is leveraged to fuel PayPal’s ongoing expansion. To wit, when eBay officially launched in Russia with a native-language site in 2010, PayPal scored with instant exposure to eBay’s new user base there. “When PayPal went into Russia, it started with a million [users],” Donahoe told Fortune last January.
Key to PayPal moving forward will be maintaining user and revenue growth in a space dominated by newer businesses. A major component of that strategy will be to take advantage of its relationships with retailers and extending PayPal’s reach and usefulness. In the early-to-mid 2000s, PayPal was synonymous with online payments. More recently, PayPal President David Marcus has pushed his company to try and capture the online-to-offline experience, too. Want that lawnmower at Home Depot? Pay for it online or via mobile app and pick it up from the nearest location. Already, that’s a compelling sell for potential new users and the kind of business synergy even current Silicon Valley darlings like Square and Stripe can’t match.