Ebay beats forecasts before PayPal spin-off

Online auction site eBay has beaten analysts’ expectations in its last set of results before spinning off its PayPal payments division.

Net revenue rose 7% to $4.4bn (£2.8bn) for the three months to 30 June, while adjusted profits were 5% higher at $931m. That figure excludes a $786m charge related to the sale of eBay’s Enterprise unit for $925m, which was also announced on Thursday.

The enterprise division develops shopping websites for retailers including Ikea but this month one of its biggest clients, Toys R Us, said it would take its e-commerce operations in-house in 2016.

The volume of payments handled by PayPal rose 20% in the period to $66bn, with 1.1bn transactions processed. PayPal revenue rose 16% to $2.3bn and the number of new accounts was 11% higher at 169m.

The company said the steady growth of PayPal’s customer base, along with more transactions per customer, underlined the brand’s growing popularity globally.

The PayPal president, Dan Schulman, said: “We continue to gain share globally in an incredibly dynamic market and … as an independent company we will continue to lead the transformation of the payments industry.”

PayPal also announced an extra $1bn share buyback, taking the total to $3bn.

For the full year, PayPal net revenues are expected to jump between 15% and 18%, with eBay revenues lagging behind with growth of 3% to 5%.

The disparity in growth between the two businesses is one reason why activist investor Carl Icahn – eBay’s sixth-largest shareholder – called on the company last year to spin off PayPal.

Despite resisting the calls for several months, eBay eventually decided that Icahn was right. Announcing the move last September, eBay’s chief executive, John Donahoe, said separating the two businesses would give them “more focus, more flexibility, more agility, more ability to move quickly”.

PayPal becomes a separate company on Friday, with shares in the payments firm trading at between $34 and $40 before the formal separation, making it worth almost $44bn. The stock was up 3.6% at $38.85 in morning trading following the results.

Analysts at Goldman Sachs rate the shares as a buy with a $48 price target.

The market capitalisation of eBay, in contrast, is $80bn after a 30% rise in its shares over the past 12 months.

James Cakmak, an analyst at stockbroker Monness Crespi Hardt in New York, said splitting the two companies made both “academic and economic sense” given that PayPal’s value had been held back by the recent underperformance of eBay’s marketplace business.

Although the online payments sector was becoming increasingly crowded, Cakmak said PayPal had a global brand, operating in 200 markets and in 100 currencies, and hence had negotiated a “very complex regulatory framework”.

However, in the future the only difference between PayPal and its rivals could be price, he said, which would limit the scope for a significant rise in the new company’s shares.

In a bid to diversify its revenue streams, the company said on Thursday that PayPal was buying Xoom Corporation for about $890m in cash to accelerate its entry into the $600bn global remittance market.

Ebay celebrates its 20th anniversary this year and Devin Wenig, its president, said that the company was making changes to ensure it remained “the best global marketplace and a great enduring internet business”.

Despite the separation, Wenig said that eBay would maintain a “strong partnership” with PayPal.

Powered by Guardian.co.ukThis article was written by Chris Johnston, for theguardian.com on Thursday 16th July 2015 18.02 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010