eBay decoupling hits PayPal earnings
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eBay decoupling hits PayPal earnings

Shares in online payment specialist PayPal took a hit this week as it became clear that its divorce proceedings from online auction site eBay are progressing faster than expected. The long-term risk to the company is small – it outgrew eBay some time ago. And PayPal’s fundamentals look solid. But the earlier than planned loss of a major partner in eBay has dented guidance – and investors are showing their displeasure.

PayPal’s share price dipped after its earnings release this week, but it’s still up by 38%

PayPal July 26

Source: Yahoo Finance

In regards to the actual financials, PayPal hewed very close to analysts’ expectations. Here are the numbers from its second quarter:

PayPal met the Street’s estimates on earnings, returning $0.69 per share. It also came very close on revenue, bringing in $4.31 billion against expectations of $4.32 billion. Regarding payment volumes, PayPal managed to overshoot predictions, processing $172.4 billion instead of the $171.6 billion analysts were looking for.

The big disparity, however, came in guidance. PayPal now expects to see revenues in its third quarter of $4.33 billion to $4.38 billion. That’s a downgrade, and fails to live up to analysts’ hopes of $4.44 billion.

Partly, this is down to PayPal’s “decoupling” from online auction house eBay. And partly it’s down to slowdowns in the formation of major new partnerships. In a Wednesday earnings call, chief financial officer John Rainey said:

“We have a few big product integrations with partners that are experiencing delays, in part because of their expanded scope. Second, our previous guidance contemplated the implementation of certain price changes that we are now delaying. While the timing has shifted out a few quarters, we still expect to realize the full benefits of our partnership and pricing initiatives.”

Disclosure

Dominion holds PayPal in its Global Trends Ecommerce Fund.


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