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eBay (EBAY) to Acquire Competitor Braintree

NEW YORK (TheStreet) -- eBay  (EBAY) will acquire online payments platform Braintree for $800 million in cash to bolster its PayPal brand.

Once in the fold, Braintree will act as a separate entity under PayPal. Braintree CEO Bill Ready will remain at the helm, reporting directly to PayPal President David Marcus. The acquisition's completion is expected before the end of the year.

"PayPal was built on helping entrepreneurs grow great businesses online," said Marcus in a statement. "With this deal I believe that we will accelerate our capabilities for developers, entrepreneurs, merchants and companies that are building the future."

Braintree powers numerous ecommerce Web sites, including Airbnb, LivingSocial, OpenTable  (OPEN) and TaskRabbit and expects to process $12 billion over 2013. PayPal, the dominant player in the relatively small online payments industry, processes more than 7.7 million daily payments, and expects a total $20 billion in mobile payments over 2013.

Mobile payments are increasingly a key factor in Braintree's profitability. Venmo, which Braintree purchased in 2012 for $26.2 million, is a mobile payments app which utilizes social networks and offers free money transfers to users.

Facebook  (FB) recently made a play in the mobile payments space, activating a feature for autofill billing information when users purchase third-party apps through the social networking site. Facebook noted PayPal, Braintree and Stripe would act as payment processors during the initial phase of the launch.

Last week, Google  (GOOG) expanded its mobile payments strategy by launching its Google Wallet iPhone app in Apple's (AAPL) App Store. Google also added Wallet compatibility to its email service Gmail.

eBay shares are 2.82% higher to $55.75 at 11:15 a.m. EST. Overall, eBay is leading the S&P 500 which is up 0.14%.

TheStreet Ratings team rates eBay as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate eBay a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 22.6%. Since the same quarter one year prior, revenues rose by 14.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although eBay's debt-to-equity ratio of 0.21 is very low, it is currently higher than that of the industry average. To add to this, eBay has a quick ratio of 1.73, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Net operating cash flow has increased to $1,011 million or 31.64% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 14.01%.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.

Written by Keris Alison Lahiff.

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