Fool.com: PayPal [Special] May 6, 2002

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(Nasdaq: PYPL)? Isn't that what you used to call me when you were little?

Edible: Only on allowance days, Mom.

Mom: Wait! I know these guys. Isn't this an eBay(Nasdaq: EBAY) company?

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.

Edible: Huh?

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.

Next: Becton, Dickinson & Co. »

Rick Aristotle Munarriz enjoys PayPal, but does not own shares in the company right now. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.

A Stock for Mom represents the opinion of one Fool and should in no way be taken as the opinion of either The Motley Fool, Inc. or the company in question, or as representative of anyone or anything other than that specific Fool's thoughts.