PayPal is aggressively adding new features for merchants, like in-store services, to shore up profits as its historic online marketplace partner, EBay, breaks away from the tie.
PayPal has known for years that EBay planned to break away, and now the divorce is finally happening. PayPal reported Wednesday that second-quarter net revenue shot up 19% to $6.24 billion over the period last year, thanks largely to pandemic-driven online spending, but its net income for the quarter fell 23% to $1.18 billion.
The impact of “ripping off the Ebay band aid” was “greater than previously expected,” Cowen research analyst George Mihalos said in a report regarding PayPal’s second-quarter results. Nonetheless, he noted PayPal's “underlying business strength.”
Headwinds from the EBay split will peak in the current quarter and then begin to dissipate, the company’s executives told analysts on a conference call. “Q3 is the height of Ebay pressure,” CEO Dan Schulman said on the call.
While the company’s business of offering online payment services to merchants continues to benefit from online shopping triggered by the COVID-19 pandemic, PayPal executives are focused on rolling out new in-store products to complement their digital services. The company recently introduced its Zettle point-of-sale system in the U.S. market to that end.
The company is moving "aggressively" into the in-store arena, Schulman said on the call, which acknowledging “it's going to be a multi-year journey for us."
Other service features the PayPal executives touted in a list of service benefits for merchants include buy-now-pay-later payment options, QR code technology, crypto payment resources and fraud prevention.
As the company digs into fintech innovations related to digital currencies and decentralized finance applications, Schulman is prepared to poach talent from peers to gear up. “We're trying to pick off the very best talent in the ecosystem to come over here to PayPal,” he said on the call. “We have a list of names and phone numbers” that are “slowly but surely” building a team. PayPal last week hired a new crypto executive to work on regulatory issues, industry trade publication Coindesk reported.
In the meantime, the company has said it will raise its fees for merchants next month. CFO John Rainey said it was the first time in years that the company had made changes to its base pricing so a boost was overdue.
The earnings may also have dipped as the company invests in the business to get ahead of changes roiling the industry and marketplace. Rainey promised analysts that PayPal profit margins will rise in the future.
“We believe in the primacy of digital wallets,” Rainey said. “We believe in the permanent pull toward e-commerce. We believe in the ubiquity of digital payments. And we want to help shape that outcome. We want to be a leader in that space.”