Ebay Inc will buy payment gateway Braintree for about $800 million to strengthen its PayPal unit's presence on mobile devices and take out a rapidly growing rival.
PayPal, the dominant online provider of payment services, has been trying to fend off a clutch of fast-rising competitors such as Braintree, Intuit Inc's GoPayment and Twitter founder Jack Dorsey's Square Inc.
The deal gives Ebay access to Braintree's Venmo, an app that lets consumers make payments on smartphones and tablets, an area in which EBay wants to be more involved.
"We believe that this deal makes reasonable sense strategically as it expands PayPal's distribution and removes a competitor," RBC Capital Markets analyst Mark Mahaney said.
Shares of EBay, 40 percent of whose revenue last year came from PayPal, rose as much as 4.4 percent on the Nasdaq on Thursday.
PayPal, with its 120 million users, has dominated online payment services for about a decade. But its growth has moderated in recent years, partly as a result of increased competition on mobile devices from smaller but nimbler rivals.
Hill Ferguson, EBay's vice president of global product, did not rule out more acquisitions to boost PayPal's mobile presence. "Anything's possible," he said in an interview.
PayPal bought mobile app developer Duff Research in March to add to its technology expertise.
The company has also been expanding into the much larger offline market, working on ways to convince customers to pay through PayPal accounts instead of credit cards or debit cards.
Research firm IDC had last year forecast that worldwide purchases over mobile devices would exceed $1 trillion by 2017. (link.reuters.com/heq43v)
The volume was about $163 billion in 2012, Gartner said.
Braintree, whose clients include online hotel booking service Airbnb and online restaurant booking service OpenTable Inc, expects to process about $12 billion in payment volume this year.
"It was rapidly becoming a potential threat to PayPal," Benchmark Co analyst Daniel Kurnos told Reuters.
Braintree, backed by venture capital firm Accel Partners among others, provides merchant accounts, payment gateway, billing and credit card storage.
Chief Executive Bill Ready Will lead Braintree, with more than 180 employees, as a separate service within PayPal.
EBay said the deal, expected to close late in the fourth quarter, will have a negative impact of 1 cent per share on its 2013 adjusted earnings.
The company's shares, which have risen about 5 percent in the last three months, were up 4.2 percent at $56.50 on Thursday afternoon.
(Reporting by Chandni Doulatramani in Bangalore; Editing by Sreejiraj Eluvangal and Joyjeet Das)