The good news for eBay (EBAY 1.35%) was that it beat investors' low expectations for the third quarter. The bad news is that growth is flat, EPS is down, and sellers are leaving its marketplace. In this segment of the Oct. 25 Motley Fool Money podcast, host Chris Hill and analysts Jason Moser, Emily Flippen, and Ron Gross discuss eBay, what its activist investors want, its holiday strategy, and more. Then they pivot to another company that once was part of it: PayPal (PYPL 3.24%). The team talks about the payment company's latest numbers, its steady rise, its tailwinds, its valuation, and more.
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This video was recorded on Oct. 25, 2019.
Chris Hill: eBay's third quarter profits came in higher than expected. So did overall revenue. Emily, you tell me. If the headline for eBay's quarter was so good, how come eBay's stock fell 10% this week?
Emily Flippen: eBay is no Aducanumab.
Ron Gross: [laughs] Aducanumab!
Flippen: Aducanumab! So, to say that they beat expectations, well, expectations were pretty low. Revenue growth was actually flat year over year. I think the stock's down largely because earnings per share was down 50% year over year, net income's down 57% year over year. And the only reason it's not more is because the company's spending money on share buybacks. The core marketplace platform has been lingering for a while now. What's interesting with eBay is that they have really strong activist investors on their board, representatives from Elliott Management and Starboard Value, they've ousted the CEO recently, put in a new CEO. It looks like they're pushing to divest this StubHub and classifieds businesses. Those are the only businesses that are growing within eBay. They think they can get eBay... I don't want to say back to its glory days. I'm not sure if it's ever going to be back to glory days. But they're thinking that they can extract more shareholder value with those businesses divested. It's going to be interesting to watch to see if that happens in the near future.
Hill: As we head into the holiday quarter, it's interesting to me that eBay, at least from an advertising and promotional standpoint, is positioning itself as almost like Etsy. They're positioning themselves as, "This is the place where you can get stuff that you can't get on Amazon or Walmart, Target," that sort of thing. I'm assuming that's not working so far, if the other parts of the business are the ones that are actually growing.
Flippen: Yeah, it's actually really interesting you draw that comparison, because a lot of people who were selling on eBay have actually moved over to Etsy. That's part of what's contributed to Etsy's amazing growth. It's not to say that eBay is dead in the water, but it's definitely not had the type of growth that Etsy has seen. Even their GMV on the eBay platform has fallen 5% year over year. They need to go back to those days of getting growth. The problem is, all their sellers and most of their customers have left for bluer pastures --
Jason Moser: Greener.
Flippen: Greener pastures.
Gross: Bluer skies and greener pastures.
Hill: I think at this point, eBay would settle for even just bluer pastures. Speaking of eBay's glory days, PayPal. Third quarter profits and revenue came in higher than expected. PayPal's stock down a bit from its highs, Jason, but payment volume is growing. The Venmo division, also growing nicely.
Moser: There are probably a lot of folks out there wondering if they missed the boat on this one. I would say no.
Hill: [laughs] Part of me was hoping you'd say, "Yeah, you have. Sorry, everybody."
Moser: I'm going to be a little bit more glass-half-full here for you folks out there. We like businesses that generate those repeat purchases, repeat transactions. Clearly, this is one of them. They have what could be a massive potential tailwind forming here in the coming decade. But let's look at some of the numbers here that matter most for the company. Added 9.8 million new active accounts. Total active accounts now up to 295 million. That was up 16% for the quarter. 3.1 billion payment transactions, up 25%. Total payment volume up $179 billion flowing through that network. That was up 27%. To your question on Venmo, that part of the business drove more than $27 billion in total payment volume, up 64%, on a $400 million annual revenue run rate. So that is becoming an actual part of the business now, which is exciting.
Back to that tailwind. If you remember, we talked about this a little bit ago, the GOPAY acquisition that they recently made. That's the Chinese payment processor. That is going to open them up to the Chinese market and processing payments and transactions in China, which has been a very difficult hurdle for a lot of these payments companies to clear. There are a number of reasons why PayPal was considered. They certainly have made a lot of innovation in the space in a short amount of time. Spent a lot on compliance and risk management. I think the benefits were seen there and consequently, PayPal appears to be moving in a very similar direction as Visa, which is good.
Hill: It's 4X the size of eBay. It's been only four years since it was spun out from eBay.
Moser: It's pretty amazing! When you look at the performance -- we'll talk more as these other companies announce -- the payment sector is so nice. It's just an attractive space.
