eBay Inc (EBAY) Closes Braintree Buyout

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E-commerce service provider eBay Inc (NASDAQ:EBAY) has completed the acquisition of the mobile payment processor company – Braintree – for $800 million in cash. This deal was announced earlier in September.

Chicago-based Braintree was founded in 2007 by Bryan Johnson. It is a payment processing company which helps businesses set up online payments through merchant accounts, mobile apps, credit card storage and payment gateways. Additionally, it’s mobile app – Venmo – lets consumers make payments via smartphones and tablets.

Braintree’s payment platform is used by many online and mobile startups, including Uber, Airbnb, Rovio, TaskRabbit LivingSocial and OpenTable. The company charges a fee of 2.9% and an additional processing fee of 30 cents per transaction. For 2013, Braintree expects to process about $12 billion in payments, out of which $4 billion will be in mobile payments.

Braintree will now operate as a separate service within PayPal. PayPal is one of eBay’s fastest-growing businesses, accounting for almost half of eBay’s annual revenues. The new division will be led by Braintree CEO, Bill Ready, who will report directly to PayPal President, David Marcus. Management projects that the acquisition will lower eBay’s 2013 pro forma earnings by 1 cent without affecting its revenues.

This acquisition is an important strategic move to eliminate eBay’s major competitors in the mobile space and  enhance PayPal’s mobile payments capabilities through Braintree’s Venmo mobile app. It is likely to put PayPal in a better position against rival mobile payment systems such as Google Inc’s (GOOG) digital wallet, Intuit Inc‘s (INTU) GoPayment and Starbucks-backed Square Inc.

Today, the biggest growth driver in the industry is the rising use of smartphones, tablets and other mobile Internet devices. Consumers, nowadays, prefer the convenience of ordering and paying online over the hassles of shopping at brick-and-mortar stores.

To benefit from this change, PayPal is taking all the necessary measures for continued growth in the mobile payment business. It is pushing beyond its online payments service and expanding its offline, mobile and online offerings to stores, restaurants and other businesses.

PayPal has introduced new solutions and acquired companies including Zong (a Chinese mobile carrier billing payment company bought in 2011) to enhance the mobile shopping experience for its customers. In 2013, the company expects to generate $20 billion of mobile commerce and payments volume.

The Braintree acquisition is yet another move by PayPal to improve its mobile payment service. In March, the company acquired a mobile app development company – Duff Research – to retain PayPal’s dominant position in mobile payment systems. Very recently, eBay unveiled a hands-free payment system – Beacon – enabling consumers to make retail in-store payments without using their phone.

Though eBay’s payment business shows great promise, competition is likely to pick up as banks and other companies announce their own payment systems and Google’sdigital wallet gathers steam.

Currently, eBay’s shares carry a Zacks Rank #3 (Hold). Investors interested in the same industry may consider a stock like Geeknet, Inc. (GKNT), holding a Zacks Rank #1 (Strong Buy).

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