eBay Spending $800 Million to Buy Braintree to Bolster PayPal Mobile Business

Andrew Klips  |

eBay Inc. (EBAY) said Thursday morning that it is spending $800 million in cash to acquire payment platform company Braintree to instantly evolve its PayPal mobile payment business.  Founded in 2007, Chicago-based Braintree has about 180 employees and roughly 4,000 merchants using its payment services.

PayPal contributed about 40 percent of eBay’s total revenue is 2012.

Braintree clients include popular startups like Arbnb, LivingSocial, OpenTable (OPEN), TaskRabbit, Fab and Uber.  The company also owns Venmo, a free mobile application that allows users to make payments to each other via mobile devices, which it bought in 2012 from $26.2 million.  Upon completion of the acquisition, Braintree will operate independently under the guidance of its current chief executive Bill Ready and the rest of the existing management team and employees.

Braintree generates revenue in part by charging merchants a 2.9-percent commission and 30 cents as a transaction fee.

Braintree expects to process approximately $12 billion in payments in 2013.  eBay anticipates an “immaterial impact” to PayPal’s 2013 net total payment volume and to have a negative impact of 1 cent to its 2013 non-GAAP profit guidance.

PayPal projected its own mobile payment volume in excess of $20 billion for 2013.

Calling Braintree a “perfect fit” with PayPal, eBay president and CEO Jon Donahoe said, “Together, we expect that PayPal and Braintree also will accelerate our leadership in supporting developers who are creating innovative solutions for next generation commerce startups.

“PayPal was built on helping entrepreneurs grow great businesses online. I’m thrilled to welcome the Braintree team,” said David Marcus, president at PayPal.

The acquisition will strengthen PayPal’s position in a rapidly growing mobile payment industry, where it competes with companies like Google (GOOG), Lemon and Square.  There were rumors that Square was also looking at Braintree as a possible acquisition target.

Released today, the 2014 Mobile Payments State of the Industry Report shows that more and more consumers own and use smartphones to access the Internet and shop.  60 percent of respondents said that they shop on a mobile device, up from 41 percent last year.  Further, the report stated,  “Consumers expressed significantly more interest in peer-to-peer payments; the number of respondents who said they would consider using email to send or receive money nearly doubled, from 24 percent to 46 percent,” a response that bodes well for platforms such as Venmo.

According to the report, security concerns were a driver in keeping people from utilizing mobile payment technologies.

Shares of EBAY have jumped ahead 3.2 percent to $55.94 in Thursday trading following the acquisition news.  Shares have underperformed the major indexes in 2013, gaining about 7 percent so far this year.

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