“PayPal’s opportunity and its niche is to power all of e-commerce,” eBay CEO

On Wednesday at the company’s annual meeting in San Jose, Calif., eBay’s CEO John J. Donahoe revealed company’s big hopes for its PayPal payments subsidiary as it managed to evolve from its core Internet auction business.

Donahoe, named PayPal “a second core business in our company” that is to become bigger than the Marketplaces segment of auctions and fixed-price product sales. He told PayPal accounted for about 20% of eBay’s $3.3 billion in revenues in 2004 and 25% of $8.5 billion in revenues in 2008. And concerning this year the CEO believes PayPal will be over a third of the eBay as it grows and reaches its potential.

“PayPal’s opportunity and its niche is to power all of e-commerce,” eBay president and chief executive John J. Donahoe told shareholders.

According to the last week eBay release, despite the Marketplaces segment’s 18% recession PayPal shows a strong growth. The company became more profitable at a time when most merchant processors are affected by the economic crisis. Thus, PayPal finished 2008 with $60 billion in total payment volume, up 25% from $48 billion in 2007, and 70.4 million active users, up 23% from 57.3 in 2006. 

Total payment volume grew 10% from the year-earlier quarter to $15.9 billion driven by PayPal’s merchant-services unit and the contribution of Bill Me Later, the transactional-credit system eBay bought last November. Payment transactions hit 254.1 million, up 20% from 211 million in 2008’s first quarter. Active accounts grew to 73.1 million, up 22% year-over year. Merchants accounted for 53% of payment volume.

Net payments revenue rate was 2.37% of the sale in the first quarter of 2009 based on a gross rate of 3.81%, from which processing expenses of 1.16% and losses of 0.28% are subtracted. In 2008’s fourth quarter, the net rate was 2.29% calculated from a gross rate of 3.78%, processing expenses of 1.16% and losses of 0.33%. Those numbers shows PayPal is sustaining pre-tax profit margins of over 60%.