EBay becomes a smart-phone player

The online auction company stands to gain as its PayPal service becomes the go-to payment system for the Android app store.

By Kim Peterson Oct 11, 2010 1:52PM
Kim PetersonWe hear a lot about Apple (AAPL) vs. Google(GOOG) vs. Research In Motion (RIMM) in the smart-phone wars. But there's another company very much in this game, and it's an unlikely contender: eBay (EBAY).

Yes, the online auction company. But eBay is becoming an online payments company with an auction business on the side. And the smart-phone wars will help get it there.

If news reports are correct, Google has all but sealed a deal to make eBay's PayPal the go-to payment system for its Android app store.

The partnership could be announced as early as Oct. 26 at a PayPal developers conference, according to TheStreet.com.

That deal works on a number of levels. Right now, Android users enter their credit card numbers to make purchases or use the clunky Google Checkout system, which isn't exactly seamless. That's been a major deficiency for the Android Market, and Google needs outside help.

Enter eBay's PayPal, which has done a great job of expanding beyond the auction universe to become a payment option for Southwest Airlines (LUV), Facebook and other partners.

EBay's payments unit, which includes PayPal and the lesser-known Bill Me Later, raked in nearly $2.6 billion in net revenue last year -- a 14% increase from the year before. Compare that with the traditional marketplaces unit, which saw a 5% drop in revenue to $4.5 billion.

If those trends continue, PayPal is on track to become eBay's most important business. And Android will help it get there. Post continues after video:
To get an idea of the revenue potential here, let's look to the app store leader: Apple. One analyst estimates that Apple's App Store revenue will jump from $425 million in fiscal 2010 to $2.3 billion in 2015, according to The Wall Street Journal. "As Android has now passed Apple in smart-phone market share, the potential revenue for app stores on Android phones is even bigger," Martin Peers writes.

Of course, the profit structure at Apple's App Store and the Android Market are totally different. We don't know what commissions PayPal will get from the deal, nor do we now how Amazon (AMZN) could disrupt things by opening its own Android app store.

But we do know that smart-phone sales are exploding, going from 172 million last year to an estimated 564 million in 2012. We know Android will be a huge part of that. And if PayPal becomes the preferred Android Market payment system, then eBay stands to gain significantly.

EBay shares are on the rise in the second half of this year, going from $20 in July to $25 at the end of September. My guess is that PayPal's momentum is the driving force behind this increase.
More from MSN Top Stocks

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.