February 1, 2018 / 1:25 PM / 7 months ago

EBay investors cheer move to ditch PayPal as main payments partner

(Reuters) - Shares of eBay (EBAY.O) hit an all-time high on Thursday after the e-commerce platform unveiled a plan to take more control of customer payments from long-standing partner PayPal, a move analysts said would help it compete better with Amazon.

An eBay sign is seen at an office building in San Jose, California May 28, 2014. REUTERS/Beck Diefenbach/File Photo

Dutch fintech company Adyen will become eBay’s primary payments processor under the plan, which seeks to have more transactions conducted directly on eBay’s sites.

Analysts said that might bring in more revenue for eBay while lowering costs, adding to optimism from a strong holiday quarter for the e-commerce company.

“Moving away from PayPal (PYPL.O), lowering the costs of selling products on the marketplace makes eBay a more significant competitor because it lowers the relative cost versus others including Amazon (AMZN.O),” said D.A. Davidson & Co’s analyst Tom Forte.

EBay is adapting to the likes of online crafts retailer Etsy Inc’s (ETSY.O) model by taking control of the payment process on its marketplaces from PayPal, Forte added.

“But to be clear, there will always be a place for PayPal on eBay — it just will be less prominent,” said Forte.

Some analysts said they were surprised by eBay’s estimate of the benefits from taking payments intermediary service in-house. The company said it would add $500 million to operating profit after the PayPal deal expires in mid-2020.

Transactions through eBay account for roughly 13 percent of total payments processed by PayPal, whose shares sank more than 8 percent in response on Thursday.

PayPal might be able to fill the hole created by eBay thanks to its strong growth rate, although that is not certain at this point, BTIG analyst Mark Palmer said.

EBay’s backing for Adyen could turn the smaller payment processor into a “much more robust competitor” to PayPal over time, Palmer added.

Other analysts, however, said PayPal, which has been eBay’s preferred provider for the past 15 years and will remain a payment page option on the platform for the foreseeable future, had the scale to ride out the blow.

“Over time, given the recent agreements with Visa (V.N) and MasterCard (MA.N), PayPal will be able to scale and expand margins,” Wedbush Securities analysts said in a client note.

At least 13 Wall Street analysts raised their price targets on eBay’s shares.

EBay’s stock climbed 15 percent on Thursday, recording its biggest one-day gain since 1998, the year of its market debut.

Reporting by Muvija M and Laharee Chatterjee in Bengaluru; Editing by Sai Sachin Ravikumar

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