Ebay Inc (NASDAQ:EBAY) has agreed to purchase Paypal rival Braintree this morning for $800 million. Braintree offers an online payments processor similar to Paypal, but it is more functional on smartphones and tablets. Paypal has fallen behind some rivals in this area in recent years, and the Braintree acquisition should help to shore up the company’s offerings.

ebay paypal

The stock market seemed impressed with the Ebay Inc (NASDAQ:EBAY) decision, ad shares in the company increased by close to four percent in early trading. Ebay is facing its first big wave of competition in years in the payments processing world. Mobile payments are becoming much more important, and the big player in online payment processing has neglected the area.

Ebay acquisition

Braintree will become part of the Ebay Inc (NASDAQ:EBAY) Paypal business and the $800 million will be an all cash deal. UBS analyst Eric J. Sheridan was a big fan of the acquisition, and he remains a big fan of Ebay in general long term.

According to Sheridan, the Ebay Inc (NASDAQ:EBAY) deal to acquire Braintree came in about 20 percent lower than expected and the new business should go a long way toward keeping Paypal at the head of the mobile payments game.

The most important benefits of this deal are, according to the UBS analysis, the removal of a competitor; acquisition of engineering talent; increased user base moat; increased mobile penetration; increased merchant coverage and increased effect on young tech savvy individuals.

Ebay performance

Ebay Inc (NASDAQ:EBAY) is no longer the hot property it once was. The company has fallen behind in a number of areas and it seems it may never catch up to major competitors like Amazon.com Inc. (NASDAQ:AMZN). The company’s acquisition of Paypal was one of the best moves it ever made, but even that segment fell behind in recent years.

From January 1 2013 through yesterday’s close, Ebay Inc (NASDAQ:EBAY) shares had increased by just over 6%, lagging far behind the wider indices. At several points this year analysts have argued that the company was modernizing and would soon come back into its own and the stock price rose. None of those rises were met with results from the company, however.

In his report on this morning’s acquisition UBS analyst Eric J. Sheridan rated Ebay Inc (NASDAQ:EBAY) a Buy and put a price target of $64 on the company’s shares.