This time of year is undoubtedly represents one of the most important earnings report times for eCommerce and related companies as they cover the important holiday season sales.
For some companies these are Q4 results, which means they also provide some full year numbers and guidance.
Our new format summarizes the most important financial metrics which we believe are most interesting to our readers. We focus more on operational details in the earning reports press releases and key comments from the earnings calls with executives that may impact small businesses using these businesses.
We start out with the two companies who had shared news that directly impacts both operations in the future. eBay’s announcement to use Adyen for payment processing starting later in 2018 clearly was a topic on both earnings calls.
eBay Q4 – The Numbers
Net Revenue: $2.613 billion (2016: $2.395 billion)
Net Income (Non-GAAP): $618 million (2016: $601 million)
Earnings per Share: $0.59 (2016: $0.54)
Highlights from their Q4 Earnings Call Transcript
- Active buyers grew 5%, ending year at 170 million.
- Fifth straight quarter of volume acceleration in U.S. Marketplace.
- GMV and revenue on the Marketplace platform grew at 6%.
- StubHub platform grew volume at 15%.
- Classifieds platform grew revenue at 13%.
- Classifieds platform continues to innovate and serve more than 250 million monthly unique visitors.
- Improvements in utilizing structured data and building catalog landing pages has resulted in 14% of all traffic landing on catalog-enabled experiences.
- Over 150,000 customers a day used guaranteed delivery while searching on eBay in U.S.
- Nearly 160,000 sellers use promoted listings to advertise over 100 million items in the quarter.
- In 2018, eBay will focus AI capabilities on computer vision, personalization, search and dynamic pricing capabilities for sellers. AR, VR and mixed reality are becoming viable platforms for development.
- In 2018, eBay plans on taking the first step towards unifying conversational commerce with the core eBay shopping experience, providing seamless voice or text assistance when needed within the desktop and app platforms. 2018 will be a year of significant focus on customer service.
- eBay anticipates something like Guaranteed Delivery and Authentication coming to other markets.
- eBay is projecting 2018 revenue between $10.9 billion and $11.1 billion, growing 7% to 9% on an FX neutral basis and 10% to 12% on an as reported basis.
“We will take the next step in transforming our user experience, including on eBay search, by launching a full product-based commerce experience for relevant inventory. This experience will leverage our structured data catalog in a more holistic way than we’ve previously done.”
Devin Wenig – President & CEO
eBay – Shedding More Light on the Deal with Adyen
- eBay has hired senior executives from companies such as PayPal, Alipay and Amazon Payments to execute this strategy.
- Extended PayPal relationship until 2023.
- eBay has not decided if they will become the “Merchant of Record” for transactions, but have not ruled out that it is one possible solution. They stress the term “payment intermediary” for now until a final decision is made on the exact relationship in the payment process. eBay may take geographically different approaches for the new payment processing method.
- eBay is fairly confident they can lower the overall selling cost on eBay. The company stated they have not yet made final decisions on the details of the payment processing solution, and it will be a process that will take some time to publicize pricing to sellers.
- Devin Wenig also clarified that the PayPal agreement is NOT an extension, but a new agreement. The original agreement continues to run until 2020 is still valid. eBay and PayPal agreed on a new three-year term after that with different conditions.
- To comply with the PayPal Operational Agreement until 2020, eBay will move 5% of payments to the new service in 2018, 10% in 2019, and the majority of payment processing after June 2020.
- Beyond a certain date, which, over due course, eBay will announce, Buyers and Sellers will not be able to be on eBay without this intermediated relationship with the company.
- eBay already intermediates over $10 billion of volume on the Marketplace. Wenig states they know how to do this and already do it. The company has a very stark comparison inside their own business of what life is like in an intermediated model and then the existing model.
eBay – Significant Quotes From the eBay Earnings Call
“Just to be clear, we’re not building a Payments business to go compete with Apple Pay, we’re not competing with PayPal, we’re not rebuilding PayPal. We’re building an intermediated payment service for the benefit of eBay customers on the eBay Marketplace, that’s what we’re doing.”
Devin Wenig – President & CEO
“As a payment intermediator on the eBay Marketplace, we will be responsible for collecting funds from buyers and instructing our payment processor to disburse funds to sellers. Currently, this is done via our relationship with PayPal. In the new intermediation model, we will simplify our relationship with sellers and plan to charge them a single fee for our Marketplace and payment services.”
Scott Schenkel – CFO
PayPal Q4 – The Numbers
Net Revenue: $3.744 billion (2016: $2.981 billion)
Net Income (Non-GAAP): $670 million (2016: $512 million)
Earnings per Share: $0.55 (2016: $0.42)
Highlights from their Q4 Earnings Call Transcript
- PayPal achieved record net new actives and engagement on their core platform, by increasing their reach and relevance with both consumers and merchants.
- They company anticipates this elevated level of net new actives to continue in 2018.
- Continue to grow market share through increasing leadership in mobile and by introducing a suite of new and innovative services and project experiences for PayPal’s customers.
- The new Open platform architecture enabled PayPal to sign new strategic partnerships with many of the world’s leading firms. Several of these companies had previously been perceived as potential adversaries. The partnerships have opened new avenues of growth from geographic expansion to in-store payments.
- Announce a new long-term strategic partnership with Synchrony Financial, which will result in PayPal receiving more than $6 billion in cash proceeds at closing. Synchrony Financial will take over the consumer loans business from PayPal.
- Payment volume grew 29% on a currency neutral basis to a $131.4 billion.
- Revenue grew by 24% and this is PayPal’s third consecutive quarter of accelerating revenue growth.
- 8.7 million active customer accounts added, with net new actives up 61%.
- 2.2 billion payment transactions, up 25%.
- 33.6 payment transactions per active account on a trailing twelve months basis, up 8%.
- For the full year 2018, PayPal expects revenue between $15 billion and $15.25 billion representing currency neutral growth of 14% to 16%.
- Active customer accounts now total 227 million.
- PayPal announced the launch of domestic operations in India. Merchants offering PayPal are able to process both local and global payments through the platform, gaining access to PayPal’s more than 200 million customers around the world and in India through a single integration.
- PayPal also made progress introducing Pay with Venmo to consumers. More than two million U.S. merchants now offer Venmo as a mobile payment option through the PayPal and Braintree platforms.
- One Touch, PayPal’s innovative checkout experience, continues its global roll out, ending the fourth quarter with 80 million consumers opted in, up from 40 million a year ago. At the end of 2017, eight million merchants offered One Touch compared with five million a year ago.
- In the fourth quarter of this year, PayPal experienced lower overall call lines into their customer service centers than they did in Q4 of 2014. This is despite an increase of 65 million active accounts.
- New companies that added PayPal as a payment choice to their mix include Walt Disney Company, Dillards, QVC, ePRICE, Dell (UK), BookMyShow, MakeMyTrip, and others.
- For the full year, Venmo’s volume increased 97% with almost 35 billion in payment volume process.
- The adoption of services that PayPal is able to monetize on Venmo is tracking above the P2P adoption Venmo experienced at a similar point in its history.
- This year, PayPal plans to integrate credit card reward points from major issuers into their PayPal Wallet as a funding source for consumers to use when they purchase at PayPal merchants.
- Expanded partnership with Facebook Messenger, adding a contextual commerce experience that allows sellers to send invoices to buyers as well as to adding PayPal as a way to fund P2P transactions within Messenger conversations.
- PayPal is now used by 10s of 1000s of Chinese merchants on the AliExpress website in order to transact seamlessly with PayPal consumers outside of China.
PayPal – On eBay Partnership
- Currently, eBay makes up 14% of Total Payment Volume on PayPal.
- PayPal believes that based on previous marketplaces moving to a Merchant of Record model, the company can retain 50% of checkout volume on eBay for a period of time. But acknowledges, overall Total Payment Volume will decrease from eBay and they will make this up by expanding or finding other partnerships.
- The company believes other marketplaces such as Uber and Airbnb will easily cover the loss of payment revenue from eBay in the future. They stated many of these marketplaces are growing at far greater levels than eBay.
- The company is prohibited from signing agreements with competing marketplaces to eBay until the operational agreement runs out in 2020. But they acknowledge they have had conversations with other marketplaces that may compete with eBay. (Note: The publicly available copy of the operating agreement specifies that an independent expert provides a publically undisclosed Market Check Report to both companies. Presumably, this report is the basis for determining competing entities).
- Under the operating agreement, eBay can choose two countries and do up to 5% of the volume as a Merchant of Record in 2018 and 10% in 2019. But according to PayPal, that is still restricted to the the first two countries.
- PayPal claims they believe the branded experience is more important and profitable to them on eBay than just being a behind the scenes payment processor on eBay.
PayPal – Significant Quotes From the PayPal Earnings Call
“I would also like to comment on our relationships with eBay. We have a very close partnership and a long history with eBay. This is governed by an operating agreement that runs for another 2.5 years through July 2020. The operating agreement lays out a thoughtful transition and allows for smooth migration from jointly owned entities to independent companies through the five years following separation.
The agreement allows for eBay to eventually become merchant of record and play a more direct role in managing the payment experience on their platform and we’re actively partnering with eBay to help their implementation of merchant of record capabilities. The operating agreement also allows for eBay to work with alternate payment service providers overtime as a transition to merchant of record. As part of that, I am very pleased to announce, the PayPal and eBay have signed a term sheet to provide our brand to services at least through July 2023.
Given our long history with eBay buyers and sellers, both Devin Wenig and I believe a manageable transition and sustained relationship is in the best interest of our mutual customers. I am very pleased we have agreed to extend our partnership and look forward to building on strong relationship we’ve established since separation.”
Dan Schulman – President and CEO
We’d love to hear your thoughts on what both companies had to say about their businesses and how they plan to move forward. Drop us a line in the comments section below.