eBay execs defend Braintree deal in face of weak Q4 outlook

The end goal for eBay, according to CEO John Donahoe, is to build a digital "payments OS."
Written by Rachel King, Contributor

eBay's rather positive third quarter earnings report was dampened on Wednesday by its weaker-than-expected outlook for the fourth quarter.

Wall Street was looking for eBay to deliver a revenue of at least $4.64 billion with earnings of 83 cents per share in Q4. But the company responded with a revenue guidance range of $4.5 billion to $4.6 billion with non-GAAP earnings slated to fall between 79 and 81 cents per share.

The online retail giant attributed its softer forecast to the pending $800 million acquisition of digital payments platform Braintree, which is expected to close at some point over the next three months.

Given that the merger was just announced a few weeks ago, Braintree was already positioned to be a hot topic during the quarterly conference call this afternoon. But analysts and investors were even more inquisitive about the rationale behind the purchase given the outlook.

CEO John Donahoe and CFO Bob Swan defended the acquisition and downplayed any hints about what the addition of yet another digital payments service means for the darling of eBay's subsidiary portfolio, PayPal. 

Asserting that executives have been "watching" Braintree for the past 12 to 18 months, Donahoe specified that company leadership was noticing Braintree's progress with two specific communities: developers and startups.

Braintree's digital payments network is particularly popular among the retail and service-oriented tech startup scene with a roster of customers that include Uber, HotelTonight, and Airbnb.

Thus, this is where eBay wants to get in on the ground level via Braintree, based on his comments.

Donahoe also admitted that eBay was also keen on Braintree's previous $26.2 million acquisition of Venmo in 2012. Venmo, which produced a platform that enabled people to send and receive money between friends, has since formed the crux of Braintree's mobile payments network -- most recently contributing to Braintree's expansion into the European market along with a partnership involving American Express.

Reflecting eBay's treatment of most of its other e-commerce assets, Donahoe reassured that eBay will run Braintree separately as its own operation, but "will do everything it can to leverage eBay's strengths" to continue fueling that international growth.

The end goal for eBay, according to Donahoe, is to build a digital "payments OS."

Swan outlined that there are three "implications" for eBay under this deal, but the most important one is the visibility that Braintree's resources will provide into purchases made across the eBay empire.

When asked if Braintree would compete with PayPal's Express Checkout solution, Donahoe replied no, explaining that "Braintree captures 100 percent of their payments across all channels, mobile apps or web," whereas PayPal only covers PayPal. 

Also stressing Braintree's focus on startups, Donahoe suggested that as merchants' operations get larger, they would likely tack on Express Checkout as an additional payments option for customers who want it.

Donahoe also defended that the addition of Braintree wouldn't "slow down" the reformatting of PayPal's backend infrastructure being that Braintree is still an "unbranded payments and gateway platform."

However, while adding that PayPal and Braintree would operate side-by-side, he did hint at a possible shift in strategy over time, noting that "we'll continue to merge those two over time."

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