PayPal is is growing at 20% annually, owns Venmo and Briantree, but it only generated net income of 5% of revenues last year. This is because the digital payment service is ploughing significant amounts of money back into itself and preparing for a life as a standalone business.
Yet PayPal does not make very much money. Net income was $391m last year, 5 per cent of revenues. PayPal is pouring money back into its business, investing in customer support (13 per cent of revenues), sales and marketing (12 per cent of revenues) and product development (11 per cent). This is not a bad strategy, but it hardly generates the profits eBay shareholders are used to. Ebay tacitly acknowledged PayPal’s need for investment when it agreed to make a $3.8bn cash payment to PayPal as part of the split. This will bring PayPal’s cash reserve to more than $6bn. Just as age goes before beauty, cash goes before growth.