PayPal Holdings Inc. (PYPL) reported a stellar fourth quarter this week, but the way Wall Street has reacted sure doesn't make it seem like that.
"We had what was another really good quarter," PayPal Chief Financial Officer John Rainey told TheStreet. "We beat on every metric. We had 24% revenue growth which was an acceleration. Very importantly, for the fifth consecutive quarter we had a record number of new customers on our platforms. All that translates into 30% EPS growth."
So why is PayPal stock down 8.3% for the week?
Investors sent shares tumbling Thursday, Feb. 1, after eBay Inc. (EBAY) announced it will end its agreement with PayPal as its first choice for payments in 2023 in favor of a smaller European competitor called Adyen.
But, according to Rainey, this has been the plan all along.
"I'd lose my mind if I tried to predict what Wall Street does and why," Rainey said. "There is a lot of speculation about our announcement as well as eBay's announcement (Wednesday, Jan. 31) and what that means for us."
Rainey explained that much of the concern is misplaced.
"This was completely anticipated as part of the natural evolution of the agreement we had with eBay. This was not unexpected for us. It was planned for in our financial performance and included in our guidance and it does nothing, nothing to change the long-term earnings profile for this business," Rainey said.
PayPal was owned by eBay from 2002 until 2015, when the company split off from the e-commerce business.
"The operating agreement that we had with eBay allowed for a five-year transition period and there were certain restrictions for both PayPal and eBay during that five-year period," Rainey explained. "For PayPal, we were not allowed to go partner with some other named marketplaces in a completely sort of unfettered way. There were restrictions on how we could partner with them. For eBay there were geographic and volume limitations for how they could use another payment services provider."
As announced this week, that operating agreement will come to an end in 2023. For both parties, it opens doors for new deals and partnerships.
"This is a natural sort of measured transition as we get to the end of the operating agreement where eBay will now be able to go do that, to go partner with another payment services provider and we can go out and partner with other large marketplaces," Rainey said.
It seems eBay has moved on from the split faster than PayPal. The company announced that it has chosen Adyen as its primary payment service. The Amsterdam-based Ayden was most recently valued at about $2.3 billion. PayPal's market value is about $94.2 billion.
But Rainey said this is a "manageable" decision, as the impact has been largely priced in and the biggest part of PayPal's business with eBay is going to be around for another five years.
"Very, very importantly for us, though, we have a term sheet with eBay where for three years post the operating agreement we still provide our PayPal button, our branded checkout," Rainey said. "And that is the largest part of our business with eBay today. It's also by a large margin the most profitable part of our business with eBay."
PayPal stock traded lower 1.6% in premarket action Friday to $77.13. While a stock price decline is never particularly welcome, it's worth noting this could just be a blip on the radar for PayPal. The company's stock has rocketed higher 98% in the past year.
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