March 12, 2013

What are effects of eBay's Acquisition of Paypal ?

I have just given a presentation on merger and acquisition of Paypal by eBay.This is a transcript of the presentation, it can be used as a pointer in further studies.

eBay- An Introduction


  • AuctionWeb was founded in San Jose, California, on September 5, 1995, by French-born Iranian-American computer programmer Pierre Omidyar 
  • eBay Inc. provides online platforms, tools, and services to help individuals and merchants in online and mobile commerce and payments in the United States and internationally
  • A multi-billion dollar business with operations localized in over thirty countries
  • On April 18, 2012 eBay reported a 29% Q1 revenue increase to $3.3 billion compared to their Q1 in 2011. Net income was reported to be at $570 million for the quarter



Key Dates : Ebay



  • In November 1996, eBay entered into its first third-party licensing deal, with a company called Electronic Travel Auction to use SmartMarket Technology to sell plane tickets and other travel products.
  • The company officially changed the name of its service from AuctionWeb to eBay in September 1997.
  • In February 2002, the company purchased IBazar, a similar European auction web site founded in 1993 and then bought PayPal on October 14, 2002.
  • By early 2008, the company had expanded worldwide, counted hundreds of millions of registered users, 15,000+ employees and revenues of almost $7.7 billion


PayPal- An Introduction

  • PayPal enables any business or consumer with an email address to securely, conveniently, and cost-effectively send and receive payments online.
  • It builds on the existing financial infrastructure of bank accounts and credit cards to create a global, real-time payment solution.
  • It delivers a product ideally suited for small businesses, online merchants, individuals and others currently underserved by traditional payment mechanisms.


Key Dates: Paypal

  • 1998: Peter Thiel and Max Levchin found Field Link, soon renamed Confinity.
  • 1999: Confinity launches first version of the PayPal electronic payments system.
  • 2000: Confinity is acquired by X.com Corporation.
  • 2001: X.com makes initial offering of stock on NASDAQ; firm is renamed PayPal Inc.
  • 2002: eBay Inc. acquires PayPal for $1.5 billion in stock

Why PayPal was sold ?

  • Competitive Landscape: eBay was in talks to make Billpoint (a credit card processing service) free to all eBay auctioneers.
  • Billpoint had small market,but this subsidy would have undercut PayPal in its core market at a point when the company had not yet broadly diversified outside of auctions.
  • Mutual Dependence with eBay: At the time of the sale, 70% of all eBay auctions accepted PayPal payments, and roughly 1 in 4 closed auction listings were transacted using the payment service.
  • Regulatory Risk: The company had to apply for money transmitter licenses on a state-by-state basis once the FDIC established that it was not a bank
  • Regulators, such as NY Attorney General Eliot Spitzer, sought to challenge the company’s business practices.
From Eric M. Jackson article
Benefits to  PayPal

  • PayPal is a diversified business that generated only 33% of its revenue from sales in eBay’s marketplace
  • It’s accepted as a payment method with gigantic merchants such as Home Depot and Dell.
  • The company is also on sure legal footing.
  • A decade ago, over two-thirds of its revenue came from eBay auctions.
  • A decade ago, there were still lingering questions as to whether some regulatory body would try to shut it down.

Image courtesy: www.trefis.com


 Benefits to eBay


  • eBay’s core business getting tough fight
  • PayPal's revenues have grown at about 25% over the past two year and experts expect it to continue growing at similar rates in the near term.
  • PayPal contributed $1.37 billion in sales, or just over 40% of all of eBay Inc’s net revenue
  • PayPal constitutes 46% of the price estimate for eBay's stock.
  • Merchant services contributes about 65% of PayPal’s Total Payment Volume
  • Some notable customers include Barnes & Noble, Dell, and NorthWest Airlines





2 comments:

Naviya Nair said...

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Paul Miller said...

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