EBay's Big Plans for PayPal

The struggling e-commerce company wants to expand its lucrative payments business

By Peter Burrows

It's a funny time for a coming-out party. But just when other companies have stopped giving financial guidance because of the unpredictable nature of today's world markets, struggling eBay (EBAY) plans to provide more details about its business than it has in three years, say company insiders.

The venue will be eBay's annual analyst meeting on Mar. 11. In particular, insiders say CEO John Donohoe plans to highlight the promise of the e-commerce giant's PayPal payments unit, which lets millions of consumers pay for products online without having to provide their credit-card information each time. With roughly 50% of the world still using cash or checks for their purchases—and with online shopping growing far faster than the old-fashioned kind—Donohoe is already on record saying he expects PayPal to one day be a larger business than the online auction site.

But analysts have not been given as much information about this business as they'd like. "We're going to give more visibility than we ever have on our sources of revenue, and our growth opportunities," says PayPal senior Vice-President Jack Stephenson. "The stock market doesn't properly value PayPal."

A Shift Toward Fixed-Price Deals

The move comes as eBay is struggling mightily in its traditional electronic commerce business. The company is best known for its product auctions in which people can bid on everything from cars to Pez dispensers, but consumers have been gravitating away from that approach in recent years in favor of the convenience of buying things at fixed prices right away.

As a result, eBay has been shifting towards more fixed-price offerings, but that has forced it to compete more directly with such traditional retailers as Wal-Mart (WMT) and powerful online rival Amazon (AMZN). The business pressures, coupled with broader economic troubles, have dropped eBay's stock by more than two thirds since its peak last year, to just more than 10 a share.

Look for Donohoe this week to do what he can to convince Wall Street analysts to stop focusing on the slowing growth of eBay's e-commerce business, which is measured in "Gross Merchandise Volume," and to concentrate more on "Total Payment Value" that flows through PayPal each quarter. (PayPal typically makes .5 to 2% of that amount.) Says PayPal CEO Scott Thompson: "We will grow the business this year. And in every market we're in, we will grow at a multiple of e-commerce."

Small market Share leaves Room to Grow

Indeed, there are plenty of trends running in PayPal's favor. Even in the U.S., where PayPal is strongest, its share of online payments is just 12%. That proportion is in the single digits in Europe, where it is growing especially fast, in part because PayPal takes much of the hassle out of making cross-border transactions that involve multiple currencies and incompatible financial systems.

Stephenson says the company also wants to grow its business with people who wish to make charitable donations directly from PayPal, and with governments who want to make PayPal an option for paying parking tickets and other transactions, as well as for paying monthly bills such as rent. "There is probably a trillion dollars worth of TPV we can get after," which is not related to retail or purchase of goods, says Stephenson.