Not many of you all have an understanding on how eBay’s PayPal segment makes money (sources of revenue, the fees (take rates) by segment, the impact of geographic mix, the impact of P2P on take rate, etc.). This issue will become increasingly important, as investors focus in on the potential impact of the proposed split of eBay and PayPal and the value and mechanics of the two businesses.
eBay’s Payments segment revenue can be split into 3 main categories – on eBay, Merchant Services (off eBay) and Person-to- Person (P2P). At a high level, it is estimated that eBay Transaction Volume of $61.1bn in CY14 and Transaction Rev at $3.1bn, with an avg. transaction fee of 5.1%. We estimate Merchant Services Transaction Volume of $63.5bn in CY14 and Transaction Rev at $3.4bn, with an average transaction fee of 5.3%. We estimate P2P Transaction Volume of $97.8bn in CY14 and Transaction Rev at $726mn, with an avg. transaction fee of just 0.7%.
One of the important things we uncovered during our research is that most other sources cite the reported 3.5% number as the takerate for PayPal, we estimate its take rate, excluding the low take rate P2P business, is closer to 5.2% (which makes sense when you consider PayPal’s additional fees); the average take rate off-eBay is likely slightly higher than on eBay due to higher attach rates for value-added services.
We also think that eBay needs a Smart Creative CEO to lead the company from the lethargic CEOs who have barely innovated in Payment mechanisms in an era of Mobile Payments and Apple Pay.