A Look at PayPal’s Q3 2008 Financial Results

by Russ Jones on October 16, 2008

in ECommerce, PayPal, Russ Jones

Russ Jones - Glenbrook Partners

eBay announced Q3 2008 results today, along with a significant PayPal milestone: off-Ebay purchase volume has for the first time exceeded on-eBay purchase volume. Before looking at what this means, the terminology here is worth clarifying. On-eBay purchase volume is all purchases made through PayPal to finalize purchases inside the eBay marketplace. Off-eBay purchase volume is all purchases made using PayPal with third-party merchants, unrelated to eBay.

The 51% milestone is significant because many believe the PayPal story is really the person-to-person, auction payments story. But if you’ve been following PayPal closely, as we have, you know that PayPal today is largely a B2C payment provider that has been growing exceptionally fast with third party sellers. Let’s let the data tell the story.

In the early days — and I appreciate the irony in referring to 2002 as the early days — PayPal had a nice split between third party purchase volume and auction purchase volume. In Q1 2002, 40% of PayPal’s purchase volume came from third-party merchants. With increased visibility, that metric had risen to 44% by Q3 2002. But after the firm was purchased by eBay, purchase volume started to shift towards auction payments. This made a lot of sense, as part of eBay’s rationale for purchasing PayPal was to provide better and tighter integration with marketplace auctions. By the end of 2004, off-eBay purchase volume was down to 29%.

Behind the scenes, PayPal was beginning to make a big push towards third-party usage and was in the early stages of development on PayPal Express Checkout. By the end of 2006, off-eBay purchase volume was up to 35%; by the end of 2007 it was at 44%. And now, three quarters later, off-eBay TPV is up to 51% of global purchase volume.

Other key PayPal metrics announced today:

  • $14.81B TPV (28% Y/Y growth, but down 1% from prior quarter)
  • 65.3 million active (19% Y/Y growth)
  • 214.5 million transactions (25% Y/Y growth)
  • 35% international (based on purchase volume); 45% international (based on revenue)
  • 3.89% revenue rate on purchase volume (unchanged)
  • 29 bps loss rate (up from 28 bps a year earlier)

One more thing… PayPal today contributes 28.2% of eBay revenue, up from 24.8% in Q3 2007.

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