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Braintree owns Venmo, an app which lets consumers make payments on smartphones and tablets, an area that EBay is looking to get more involved in.
“We believe that this deal makes reasonable sense strategically as it expands PayPal’s distribution and removes a competitor,” RBC Capital Markets analyst Mark Mahaney said.
EBay shares, which have risen about 5 percent in the last three months, were up about 2 percent in morning trade on the Nasdaq on Thursday.
PayPal has been battling a host of start-ups, such as Square Inc, that are trying to chip away at its lead in online and mobile payments.
“I think that the Braintree acquisition makes a lot of sense … It was rapidly becoming a potential threat to PayPal,” Benchmark Co analyst Daniel Kurnos told Reuters.
Braintree, which has more than 180 employees, provides merchant accounts, payment gateway, billing and credit card storage.
It will continue to operate as a separate service within PayPal, led by Braintree Chief Executive Bill Ready, EBay said.
In March, PayPal bought mobile app developer Duff Research to add to its technology expertise.
PayPal, which helps people transfer money via personal computer or smartphones, contributed about 40 percent to eBay’s total revenue in 2012.
EBay said the deal, expected to close late in the fourth quarter, will have a negative impact of 1 cent on its adjusted earnings per share for 2013.
PayPal has also been expanding into the much larger offline market, and is working on ways to convince customers to make transactions with their PayPal accounts instead of using credit cards or debit cards.
Reporting by Chandni Doulatramani in Bangalore. Editing by Sriraj Kalluvila and Sreejiraj Eluvangal.
Copyright (2013) Thomson Reuters. Click for restrictions