PayPal’s Revenue Soars, Donahoe Backs Off NFC Nastiness

PayPal’s third-quarter earnings reported Wednesday (Oct. 15) climbed 20 percent to $1.95 billion, gaining 4.4 million new active registered accounts to end the quarter at 157 million active registered accounts (14 percent growth from last year). PayPal’s mobile payment volume grew 72 percent to $12 billion while its net total payment volume grew 29 percent with Merchant Services up 37 percent. Active accounts acquired on mobile were 2.9 million and newly rebranded PayPal Credit grew 29 percent.

With those strong increases as a backdrop, eBay CEO John Donahoe walked back his earlier pessimistic predictions about NFC, which he once said stood for “not for commerce.” Apple’s much-publicized introduction of its NFC-fueled Apple Pay, Donahoe said, has forced him to reassess NFC.

“PayPal has always been sort of technology agnostic around how a consumer wants to pay. For quite a while, we thought NFC was not going to get very fast adoption. Now with the recent industry changes, with localization, I think that will be accelerated. Although it’s important to understand (that) accelerated may be (moving) from a three- to a five-year horizon to a one-to-three-year horizon. This is not something that’s going to happen in months,” the CEO told analysts in a conference call. “In Australia, there is a fair amount of NFC use and consumer adoption and there are times where they tap their phones, there are other times they tap their cards in an NFC format. So our goal is to have PayPal to be enabled for however our consumer wants to pay and so that’s what we’re doing. And as I said, anything that increases digitization of payments I think expands our addressable market.”

Analysts peppered Donahoe with questions about the announced PayPal spin-out next year, but the CEO shed little new light on those plans. He acknowledged, for example, that there will be substantial onetime costs associated with that separation process, but provided no specifics.

“On incremental cost associated with the separation, I would say that’s a TBD (to be determined),” he said. “Obviously, we’ll incur some onetime costs as we prepare for the separation between now and the next year, consistent with separations that you’ve seen along the way and we’ll provide as much detail and transparency as we can as we go further along in the separation process.”

The CEO also observed that the longterm pattern of PayPal has recently shifted a little, which is not surprising given the huge shifts in the payments space and extensive marketing investments that parent eBay has been making.

When Donahoe was asked about PayPal and Apple Pay, he responded that it was PayPal’s ambition to  “enable payments anywhere consumers want to shop and pay” citing the Braintree acquisition as key to fulfilling that value proposition.  He also stressed that Apple “ has always been an important partner of both eBay and PayPal” and regarding Apple Pay and PayPal as a funding method “will work toward whatever is right in the months and years ahead.”

“On PayPal, (we’ve seen) one thing that’s been the same and one thing that’s a little bit different. The thing that’s been the same is transaction margins. For a number of years now, we have maintained a very healthy transaction margin business despite the fact that we’ve been growing quite a bit off eBay, expanding our presence with large merchants, and as I indicated earlier, rapidly growing with Braintree,” he said. “With that growth, we’ve still maintained north of 60 percent transaction margins. More recently what’s different is we’ve begun to invest more in the PayPal brand from a position of strength to drive more brand awareness and drive consumers’ perceptions of PayPal to capitalize on what we believe is a wonderful brand that has lots of use cases for merchants and consumers. That’s a little bit different than historical.”

PayPal’s strong quarter gave eBay the needed boost in what was referred to as a “very rough year” for eBay following a loss of the amount of traffic due to Google SEO tweaks and the cyber security breach that caused password reset glitches.

“PayPal had another strong quarter, and its mobile payments leadership and momentum continued with mobile volume up 72 percent to $12 billion. PayPal is on track to process 1 billion mobile transactions in 2014. And eBay continues to focus on enhancing its competitive position, improving the experience for buyers and sellers and investing in consumer engagement. As we prepare to separate eBay and PayPal in 2015, our teams are focused on strong execution to ensure each business is set up for long-term success,” Donahoe said in the earnings analyst call Wednesday.



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