With Its Spin-off Looming, PayPal Reports Strong Growth in Mobile, Overall

By John Stewart

Ahead of an expected separation later this year from its long-time parent eBay Inc., PayPal Inc. on Wednesday reported strong growth in both its overall business and in the burgeoning mobile-payments market.

Payments volume for the San Jose, Calif.-based processor climbed 24% in the first quarter compared to the year-ago period, to 1.04 billion transactions. PayPal exceeded the 1 billion mark in quarterly transactions for the first time in the fourth quarter.

But mobile payments are growing much faster for the company, which offers mobile services through its rapidly expanding Braintree and Venmo units as well as via PayPal’s own point-of-sale efforts. Mobile transaction volume is now nearly 30% of overall volume, reported Dan Schulman, PayPal’s president, who will take over as its chief executive when the company separates from eBay to become an independent, publicly held company.

That transaction share would put mobile at more than 300 million quarterly transactions for PayPal. Schulman, who spoke during an earnings call Wednesday, added that mobile traffic is growing at an annual rate exceeding 40%, though he did not cite specific figures.

For the quarter, PayPal added 3 million active accounts, to reach 165 million worldwide, up 11% over the first quarter last year. And dollar volume processed reached $61.4 billion, a 25% increase year-over-year adjusted for foreign-exchange effects.

PayPal’s profitability slipped slightly owing to its penetration of larger merchants, which can negotiate lower rates, as well as the growing effect of its lower-margin Braintree business, according to eBay chief financial officer Bob Swan, who also spoke during the earnings call, PayPal’s transaction margin, accounting for overall revenue less transaction expenses and credit losses, was 63.8% in the quarter, down 80 basis points from the year-ago period.

EBay executives and Schulman reported steady progress toward the separation, which was announced last September and is expected to close in the third quarter. Under a 5-year separation agreement, eBay will be free to offer any payment-processing service it chooses but may not enter the payments business itself. PayPal will be free to process for any client but may not set up an online marketplace.