PayPal Brushes off a ‘Challenging’ Period for Parent eBay, Posting Solid Gains

PayPal Inc. enjoyed a solid quarter of growth despite what eBay Inc. chief executive John Donahoe characterized Wednesday as a “challenging” first half.

One of the biggest of these challenges, according to Donahoe, was a data breach that occurred in late February or early March and that led PayPal parent company eBay in May to advise its 145 million users to reset their passwords. While the company found that hackers had accessed a database housing names, email addresses, physical addresses, phone numbers, and dates of birth in addition to passwords,  PayPal data weren’t affected.

“We have no evidence encrypted passwords were compromised in any way but we made the right decision to ask eBay customers to reset their passwords,” Donahoe said during the company’s second-quarter earnings call, even though some users who changed their passwords have not returned to their former level of activity.

As for PayPal, total active user accounts grew 15% year over year to 152.5 million, according to numbers eBay released Wednesday. Dollar volume processed reached $55 billion, up 26%, on 850.2 million transactions, a 21% increase. PayPal’s volume stemming from eBay activity actually shrank for the second quarter in a row, to $14.7 billion, after peaking at $15.3 billion in the fourth quarter. Volume from e-commerce merchants more than compensated by increasing fully 33% to $40.4 billion.

Nearly half—49%–of PayPal’s dollar volume now comes from international transactions. International customers cite PayPal as their favorite method of cross-border payment, Donahoe said during the earnings call.

PayPal is also benefiting from eBay’s acquisition last year of Chicago-based processor Braintree, which had a “strong quarter,” Donahoe said, without citing numbers. He referred to a “new set of software tools” launched during the quarter by Braintree that lets developers integrate both Braintree and PayPal in a single app in about 10 minutes

PayPal remains solidly profitable, generating a transaction margin (transaction revenue less transaction expense and losses) of 65.1%, up from 64.4% a year ago and 64.6% in the first quarter.