Controversial

eBay Earnings Call Ballad: Auld Lang Syne

It’s the final countdown for eBay and PayPal today (July 17) as they enjoy their last hours together.

From the multitude of voices on yesterday’s (July 16) eBay’s earnings call, one thing was clear: the two companies — ready or not — are poised to move forward separately after being under one umbrella for 13 years. By Monday (July 20), eBay will remain EBAY and PayPal will become PYPL.

That leaves just one question on the minds of every analyst and investor: How will eBay and its struggling Marketplaces fare without PayPal’s growth to give it a boost?

Well, eBay’s incoming CEO Devin Wenig did all he could to share a positive look during yesterday’s call — keeping an optimistic tone, but also recognizing the hurdles ahead for eBay. 

Most of those headwinds have existed for some time — like cleaning up its SEO and search navigation issues, and attracting more buyers and sellers to the site (sort of strong headwinds, mind you…). Challenges, as Wenig said, may include eBay having to “make hard choices along the way,” as the company moves forward.

“I’m encouraged by the state of our business,” Wenig said on the call with analysts. “We’ve made solid progress but we have significant work ahead of us.”

The earnings call was crowded with the team of execs, which besides Wenig and eBay CEO John Donahoe, included eBay’s CFO Bob Swan, PayPal CEO-designee Dan Schulman, PayPal CFO Patrick Dupuis and Scott Schenkel, PayPal’s CFO-designee. And all had their chance to get in their last words before the companies split.

Donahoe, who will continue to serve on PayPal’s board following the split (but not eBay’s), provided the introductory comments – his last as eBay’s CEO. He quickly handed the baton to Wenig to handle most of the questions. Donahoe affirmed eBay’s vision for the future by re-iterating that it has moved through the transition with PayPal with “speed and clarity,” and “preserved synergies while creating equal opportunities with each business.”

During the call, Donahoe confirmed that the rumors of the sale of its Enterprise unit were, in fact, true. eBay Enterprise will be sold for $925 million to a consortia of buyers that includes Sterling Partners, and Permira Funds.

The spinoff of eBay’s Enterprise unit has been long anticipated, hinted at initially during eBay’s Q1 2015 call — a quarter that revealed what most already knew: PayPal was surging, while eBay Marketplaces was sagging.

Q2’s results showed similar results for the two sides of the company.

eBay’s Marketplaces posted a 3 percent dip in revenue to $2.12 billion, while PayPal posted a 16 percent revenue increase to $2.26 billion. In terms of GMV, eBay Marketplaces dipped 2 percent. A bright spot in the quarter for eBay was the fact that its active buyers grew 6 percent, but attracting new sellers has been a continuous struggle. 

Guidance for PayPal includes expected net revenue growth of 15-18 percent for the full year 2015. This guidance does not include the pending acquisition of Xoom Corporation. eBay’s adjusted revenue expectations for the year are for a 3-5 percent growth. 

As for PayPal, total payment volume grew 28 percent from Q2 the year prior to $66 billion. Merchant services volume on PayPal was up 27 percent but eBay’s volume was down 1 percent. PayPal’s merchant services volume was up 36 percent, while eBay’s merchant services volume was up 6 percent. Monetization per active account also increased to $50 per year, which was up from $48 a year ago.

Transactions per active account were also up from last year, growing from 21 times a year to 24 in this year’s Q2. Mobile transactions for PayPal also saw a massive jump and grew 42 percent from the year prior. Mobile transactions now account for 30 percent of total transactions.

PayPal’s Growth And Next Steps


Technology, engagement, transactions, infrastructure and data – those were the key themes that Schulman hit upon during yesterday’s earnings call.

“We see ourselves as a mobile-first platform and the majority of our development efforts continue to support our innovation across mobile payments and digital commerce. Being a trusted way to pay in today’s most popular apps is helping to drive this increase across mobile engagement — across not only online and in app, but importantly we are seeing the very beginning of our in-store strategy play out. PayPal continues to make very strong inroads with leading mobile players,” Schulman noted.

“We want to become more of a part of how customers move money,” he later noted.

PayPal is now live with 67 percent of the top mobile merchants, Schulman commented during the call, adding that PayPal continued to make “initial strides at powering the in-store mobile shopping experiences developed by our merchant partners.” But PayPal still has ambitious goals for its engagement figures.

“As pleased as we are with our customer’s engagement, we aspire to be much more. We want to create a value proposition that inspires the average PayPal customer two to three times a week versus the two to three times a month they use PayPal today. And while that is a significant stretch goal for us, we already see this type of usage better with our Venmo users,” Schulman said.

He also highlighted a key transaction figure about Venmo, saying that in Q2, it processed $1.6 billion worth of transactions. This, remarkably, was a 247 percent increase from last year’s Q2. PayPal continued to grow new active accounts by 11 percent to 169 million (up from Q1’s 165 million) and processed 1.1 billion transactions in the quarter.

“We continue to push forward the transformation of our technology platform. We’ve made great process and are approximately two-thirds the way through this three-year initiative. We have re-architected much of our back infrastructure and consequently sped up payment processing by 50 percent on the past year,”  Schulman remarked, pointing next toward PayPal’s One Touch.

“While it will take time to properly deploy OneTouch through our various payment flows, we expect it to be available for over 50 percent of our U.S. transactions by year end,” he said.

PayPal also saw two major acquisitions during Q2 — Paydiant for $280 million and Xoom for $890 million. Schulman also used one keyword that’s become quite the buzzword in the payments space: agnostic.

“With the integration of Braintree and the addition of Paydiant to our payment platform, we can provide end-to-end solutions for merchants of all sizes — online, in-app and in-store. By being payment-device, point of sale and operating system agnostic, we enable merchants to navigate the increasingly complicated and confusing landscape of payment options and changing consumer behaviors. Beyond the checkout with merchants, the accelerated adoption of mobile commerce and payments by consumers affords us the opportunity to transform the management and movement of money,” Schulman said. 

With all the hype surrounding the PayPal IPO, its new CEO also acknowledged the challenges that come with becoming a publicly traded company once again, while trying to scale its technology and payments platform across the globe.

“We are just starting. Today the potential to improve and transform how money works for people has never been greater. We are fully signed up to meet that challenge and are excited by the tremendous opportunity ahead,” Schulman concluded. 

Payment volume on eBay Marketplaces was $14.5 billion for the quarter, with accounts for 22 percent of its total payment volume.

 eBay’s Marketplace Plans


Wenig is optimistic about eBay’s plans to overcome many of the challenges that have left eBay in a “transition year,including the clean-up after the breach it suffered in 2014.

“We’re still looking to recover buyers we lost after last year’s cybersecurity incident,” Wenig said.

But that isn’t to say that eBay doesn’t have a clear strategy about how it plans to scale its growth to ensure its Marketplace unit can bounce back to what it once was.

“To be clear, our absolute priority is to improve our competitiveness and drive more stable and profitable growth over the long term. We have a clear strategy and vision for our business,” Wenig said. “We intend to focus on our target customer base and on a market segment where we believe we can win.”

That segment, he emphasized, is SMBs — eBay’s core seller segment that Wenig said eBay plans to “lean into.”

And by “leveraging structured data to drive discoverability both on and off [eBay’s Marketplace],” Wenig said eBay aims to enhance the user experience both from the buyer and seller perspective. This will happen by enhancing how products are listed, but also how they are categorized on eBay’s new browser pages that can help fix its SEO and Google algorithm issues that caused a setback last year. eBay will also focus on its mobile audience by scaling its U.S. classifieds mobile app.

As Wenig emphasized during eBay’s investor day, eBay started off 2015 by addressing issues that the company recognized would take time to solve. Because of that, its revenue guidance was initially projected lower than what the team provided for Q2 guidance. Now, halfway through the year, things are looking up for eBay.

“This will be a transformative year for eBay but we’ve got a lot of work to do. Which in and amongst themselves will be the right decisions for eBay but they will create some short-term growth issues,” Wenig said. “We’re doing what we said we would do. We’re executing strategy, we’re going through our issues — all of that remains exactly what I said in the first quarter…I would just say, we’re feeling good. We’re on the right path.” 

Overall, eBay posted a net income of $83 million, which was down from last year’s Q2 of $676 million. Revenue for Q2 jumped to $4.38 billion from last year’s $4.1 billion.

Regardless of what happens for both companies post-split, Wenig concluded by marking eBay’s next milestone and shared his thoughts on remaining close with PayPal as it moves into its next stage as a publicly traded company.

“I am encouraged by the state of our business and the progress against our strategy,” Wenig said. “As eBay celebrates its 20th anniversary this year, we are making rapid changes to position the company for the future. My goal, and that of the entire leadership team, is for eBay to be the best global marketplace and a great enduring Internet business. As we move into our next chapter, we also look forward to continuing our strong partnership with Dan and the PayPal team.”

With a whole new book to be written, beginning Monday, July 20, 2015.

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