PayPal, a well-known financial technology company providing online payment systems and services, was founded by Peter Thiel, Luke Nosek, and Max Levchin, and was one of the earliest players in the online payment arena. However, taking a closer look at its history, the company was initially engaged in developing security software for hand-held devices under the name of ‘Confinity’. The company did not see much success and later was merged with ‘x.com’ founded by Elon Musk. Later in 2001, it was renamed PayPal. It went public in 2002 and was listed at $13 per share and went on to become an American multinational company that is currently headquartered at San Jose, California, USA.
PayPay and eBay:
PayPal brought a revolution in the payment industry, and the primary factor that played a vital role in its growth and success is the partnerships and acquisitions that it entered. In 2002, PayPal was acquired by eBay in October 2002 for $1.5 billion. After this acquisition, the majority of eBay auctions accepted payments through PayPal and it was used by the majority of eBay users as a default payment option. It went on competing with other players like Google’s ‘Google Checkout’, Yahoo’s ‘Pay Direct’ etc. Its easy-to-use user interface allowed it to gain popularity among its users.
Acquisitions and Partnerships
To scale its growth, it acquired Verisign payment solution to improve security to gain more confidence from its users. To make users more and more accustomed to using PayPal, it entered into a partnership with MasterCard as it knew the importance that cards hold in transacting payments. It allowed the linking of credit cards to users’ PayPal accounts conveniently. This step also provided them with access to various stores and shops.
To enter deeper into the consumer market, PayPal invested in the cab-sharing and transportation service company, Uber. As Uber was growing at an exponential pace, it provided PayPal with an opportunity to grow its consumer base to a large extent as it became a preferred payment option for Uber passengers. It continued to follow this strategy and targeted companies with a large user base to become their preferred payment option, including social networking companies like Facebook.
Using this partnership and acquisition strategy, it entered the Chinese market after acquiring GoPay with a 70% stake. As the Chinese market has a vast e-commerce business, it could provide PayPal with an enormous consumer base.
PayPal decided to spin-off from eBay in 2015 as a separate publicly-traded company. PayPal had made more than 20 acquisitions that helped it prosper in the financial technology space and bring an online payment revolution. Click here to know more on Paypal share price details.
For the financial year 2020, PayPal clocked an annual revenue of $21.43 billion generating an income of $4.60 billion [EBITDA]. PayPal has remained profitable consistently over the past years with an increase in its consumer base, thereby making it an attractive investment for the portfolio.