PayPal Fuels eBay's Fire

NEW YORK ( TheStreet) -- If there was any doubt about the burgeoning growth that the mobile payments business is seeing, PayPal proved the doubters wrong.

EBay's ( EBAY) third-quarter earnings were largely aided by explosive growth at PayPal, where revenue increased 23% year over year. Total payment volume rose 20% over the same period to reach $35.2 billion.

It's abundantly clear that mobile payments are seeing explosive growth, and PayPal is at the forefront.

The Digital Wallet's Future Is Now

Barclays Capital analyst Anthony DiClemente noted that eBay (partly through PayPal) continues to see strong growth in mobile and point-of-sale systems, as it approaches $10 billion in mobile payment volume this year. DiClemente rated eBay shares equal-weight but raised his price target from $44 to $49 following the results.

PayPal recently signed a deal with Discover Financial Services ( DFS) to bring PayPal access to the 7 million merchants across the country which take Discover, starting in the second quarter of 2013. PayPal already has a deal with Home Depot ( HD).

For the entire third quarter, eBay earned 55 cents a share on a non-GAAP basis on $3.4 billion in revenue. Analysts polled by Thomson Reuters expected the online auction services company to generate 54 cents a share on $3.4 billion in revenue.

The online auction services company also provided a fourth-quarter outlook and guidance for the rest of 2012. The company expects non-GAAP earnings between 66 and 69 cents a share on $3.85 billion to $4 billion in sales. GAAP earnings are expected to be between 55 cents and 58 cents a share. Analysts expect earnings of 68 cents a share on $3.94 billion in revenue.

For the full year, eBay expects full-year revenue between $13.95 billion and $14.1 billion, with non-GAAP earnings between $2.32 and $2.35 a share. Analysts forecast earnings of $2.34 a share on $14.02 billion in revenue.

The mobile payments space is white-hot with the likes of Square, BrainTree, Visa ( V) and MasterCard ( MA) all jockeying for position.

Piper Jaffray analyst Gene Munster noted eBay is likely to see its share of attention.

"We expect that the awareness and optimism around mobile payments is likely to continue to increase over the next two years, and despite questions about how and to what extent PayPal will participate, shares of EBAY will likely get caught up in the positive attention," Munster wrote. He rates eBay overweight with a $60 price target.

As the mobile payments story continues to play out over the next few years, PayPal is poised to capture more volume and increase market share. Active accounts grew 14% this quarter, up from 13% in the prior quarter.

Munster noted that it's still hard to predict when mobile payments will add incremental growth; he believes it's likely to happen in late 2013 or 2014 as the space continues to take form and shape.

It's become clear that PayPal is the major growth driver for eBay and will likely continue to be so as the mobile payment space continues to take space. With eBay shares up 66.07% year to date, it's not hard to see PayPal eventually overtaking eBay's Marketplaces as the leading revenue generator for eBay in the next couple of quarters.

That's a move you can take to the digital bank.

Interested in more on eBay? See TheStreet Ratings' report card for this stock.

-- Written by Chris Ciaccia in New York

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