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PayPal Investors, Stop Worrying About eBay

By Chris Neiger - Feb 5, 2018 at 6:05PM

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eBay was part of PayPal's past, but it was never part of its future.

eBay (EBAY 0.05%) said recently that starting in 2020, it will no longer use PayPal Holdings (PYPL -0.49%) as its primary payment provider. The two companies have been intertwined since the e-commerce platform bought PayPal in 2002 for $1.5 billion and then spun out the company into its own business in 2015.

PayPal investors pushed down the company's stock following the news, which also coincided with PayPal's fourth-quarter earnings, mainly because they're worried about the payment processor's prospects once the two companies have gone their own ways. While it's not great news that eBay has found another primary payments processor in European-based company Adyen, there's no reason for PayPal investors to panic. Here's why. 

Man with hands on his face looking worried.

Image source: Getty Images.

Why there's no need to panic

eBay said in a press release that it's transitioning away from PayPal as its main payments processor to Adyen so that it can offer lower costs to its sellers and more payment options for buyers.

"eBay intends to further improve its customer experience by intermediating payments on its Marketplace platform," the company said. "In doing so, eBay will manage the payments flow, simplifying the end-to-end experience for buyers and sellers."

eBay added that PayPal will remain the key payments processor until 2020 and will be a payment option on the site until at least 2023. "PayPal will remain an important partner to eBay," the company said.

That last part is important because it means that PayPal will still be offered as a payment solution for customers for the next five years, so there's no need to worry that the company will be officially cut off from eBay's site anytime soon.

What's also important to note here is that even though eBay brought in about 13% of PayPal's total payment volume (TPV) in the fourth quarter, investors should remember that that figure was as high as 19% just two years ago. That means payments from the e-commerce website are becoming a smaller portion of PayPal's overall TPV. If that trend continues, eBay will probably make up even less of PayPal's TPV by the time the partnership ends. 

But the most important thing for PayPal investors to remember is that the company doesn't need eBay to survive. Yes, sales from eBay are significant to PayPal's financials right now, but the company has new opportunities that could help offset those transactions.

PayPal's peer-to-peer payment app Venmo is one such example. In the most recent quarter, payments made through Venmo totaled $10.4 billion, an 86% year-over-year increase. The company recently launched a few new options to monetize the Venmo app, by collecting a fee from individual users to move money more quickly into their accounts and by charging merchants to use the platform for payments.

eMarketer estimates mobile peer-to-peer payments in the U.S. will see significant growth in the coming years and that payments in this market will reach $244 billion by 2021.

The end of the eBay/PayPal relationship could also offer additional opportunities for PayPal that weren't available before. Under the current partnership, PayPal had some restrictions on the payment processing deals it could make with other companies, but in 2020 it will be free to do as it pleases.

Looking ahead, not behind

In short, PayPal investors need to focus on the company's future possibilities. eBay was an important part of PayPal's past, but its financial significance to PayPal was already beginning to wane, and it will do so even more by the time their deal officially ends.

PayPal will be fine without eBay, and it already has huge opportunities in the peer-to-peer payments market. Investors who are selling PayPal's stock because eBay's transitioning to another payment processing company seem to be focusing too much on the past, and not enough on PayPal's future. 

 

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Stocks Mentioned

PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
PYPL
$71.47 (-0.49%) $0.35
eBay Inc. Stock Quote
eBay Inc.
EBAY
$42.67 (0.05%) $0.02

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