Trading at $26.16 as of May 3, 2002
Overheard at the Edible Mother's Day picnic:
Edible: Hey, Mom, Happy Mother's Day!
Mom: Uh-oh, it's that son of mine who can't take a hint when I tell him I want something that I don't need to unscroll. I hear flowers make a fine present.
Edible: What makes you think I have another stock for you this year?
Mom: The fact that you're transcribing this conversation for that Fool thingy you do.
Edible: Well, so much for the element of surprise.
Mom: I see it. Hand it over.
Edible: Well, fine.
Mom: What the heck is PayPal
Edible: Only on allowance days, Mom.
Mom: Wait! I know these guys. Isn't this an eBay
Edible: Well, they are listed as a payment option on 72% of eBay auctions, but there's more to the story than that.
Mom: Oh, story. I like those. Let me grab a chair and fan myself with this stock certificate while you try to dazzle me.
Edible: There was a time when you needed to set up a costly credit card merchant account -- or deal with someone who had -- in order to perform a charge transaction. But when eBay stormed onto the Internet scene, there was a cry for a company to help close the sale between the bidder and auctioneer. PayPal stepped in, ushering in the age of dot-com convenience in the field of micro-payments.
Mom: So you could have used PayPal to buy me a real present?
Edible: Well, yeah, sure. In the March quarter, PayPal's revenue was just a fifth of eBay's -- but it also grew the top line nearly five times faster. The company is profitable.
Mom: Well, I guess if you can't buy me a coat, at least buy me coattails.
Edible: No, it's better than that. I mean, sure, it's exciting when I hear that eBay thinks it can triple its top line in three years, but as breakneck fast as that might seem, eBay is actually the sandbag beneath PayPal's wings.
Mom: Is this the part where I shake my head incredulously?
Edible: No, really. The eBay business is actually PayPal's slowest growth area. The popular auction site now represents just 61% of PayPal's payment volume. From that guy starting a subscription newsletter in Duluth to that family-owned antique mail order business in Chicago, PayPal is becoming the currency of choice online. More than $6 billion in transactions have been processed through the PayPal gateway.
Mom: Wow, that's a thousand Steve Austins.
Mom: Forget me. Keep going.
Edible: PayPal has more than 15 million accounts right now, with a fifth of those being business accounts. Every day, another 28,000 folks sign up with PayPal -- that's twice as many new users as the mighty America Online is signing up on a daily basis. While the company's going to be a friction target -- from inquisitive state banking regulators to hungry credit card companies -- PayPal is the snowball that has truly gotten e-commerce rolling again. You really don't want to get in the way of this feel-good growth story.
Mom: Sounds good, but is it cheap?
Edible: Well, not exactly. But you're also talking about a company that is expected to more than double its top line on sweet 10% profit margins this year. And, relatively speaking, it's trading at just a tenth of eBay's market cap. There's still some ground left to cover.
Mom: Impressive. Is this the part where you tell me you love me?
Edible: I just did.
Mom: Indeed. I love you, too.
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