ebay's credit-payment service is a success concern: downside risks to valuations

Lead: The online version of the US "San Jose Messenger" writes today that ebay's credit-payment tool, BML, is becoming increasingly visible, not only as a new revenue source for ebay, but also as a boost to PayPal's profitability.　　However, the BML business offers ebay a lot of benefits while also keeping ebay under regulatory and valuation downside risks. The following is the full text of the article: Business growth there is a warning in hamlet of Shakespeare's plays, "neither ask for money nor lend money." "EBay (Weibo) online payment service PayPal complied with the proposal, charging transaction processing fees, rather than lending money to those who may eventually be unable to repay.　　But as one of ebay's fastest growing businesses, the credit payment tool Bill Me Later (hereinafter referred to as "BML") is changing this creed. BML provides credit to online buyers so that they can pay after a few months of buying a product. Ebay bought bml at nearly 1 billion dollars during the 2008 financial crisis. Last year, BML accumulated 2.3 billion U.S. dollars, an increase of 64%.　　ebay is set to release its second-quarter results on July 18, and BML's performance growth will be in line with ebay. Analysts say BML could be a new source of incentives for ebay's profit growth, while also driving the rest of ebay's business.　　For example, it can improve PayPal's profitability by reducing the cost of financing. "BML is one of ebay's best-known and fastest-growing businesses, and I think it will be more prominent in the future on ebay," said Gil Luria, an analyst at Wedbush Nomura, an American investment firm. BML is becoming increasingly important because it allows ebay to turn PayPal into a real financial product rather than a pure trading tool. "Faced with credit risk, however, Rulla also warned:" As bml business grows, PayPal will face more credit risk ", once bml business scale to a certain extent, and PayPal's growth rate slowed, then ebay's stock valuation will face downward pressure.　　But for now, BML is helping ebay to open up new markets in online payments. BML was ranked third in 2011 as the most popular alternative online payment service, after PayPal and Amazon's payment business, according to Javelin Strategy & Research, a market researcher, in a new research report.　　The report showed that BML's market share was 14%, compared with 1% in 2010. "BML and PayPal are two Needham," said Kerry Rice, an investment firm, in an investment report Kelly LesPowerful payment tools dominate the online payment market. BML's rapid growth should make the revenue growth that drives ebay's payments business. "Scott Devitt, analyst at Morgan Stanley, expects bml revenue to reach $500 million trillion by 2015, well above nearly $200 million trillion in 2011," Scott Dewitt.　　In an investment report earlier this year, Bml wrote that operating profits would be close to $70 million trillion in 2012, and that the business would be more profitable as market share grew. One of the biggest benefits of bml overseas money is that it provides ebay with a lucrative tool to make the most of its $7 billion trillion in foreign cash reserves.　　Because of this huge amount of cash overseas, ebay cannot repay investors in the form of dividends, because once the money is returned to the US, it will be taxed heavily. Since September 2010, some of ebay's offshore cash reserves have become a major source of funding for the BML loan portfolio--BML The standard annual interest paid by customers is close to 20%.　　As of the first quarter of this year, half of the portfolio came from ebay's overseas cash. In an interview this April, after ebay's first-quarter earnings, Donahoe, CEO John Donahoe, said: "BML really allows us to use our overseas cash effectively." It pays us far more than 1%. Donahoe said that the ebay CFO Bob Swang Bob Swan The idea of using BML to solve the problem of overseas cash use: "He will try to seize every opportunity to get our money back." Analysts said BML could also help PayPal reduce financing costs. At present, more than half of PayPal transactions through Visa, MasterCard and other existing payment network debit cards and credit card financing. But in this case, PayPal has to pay a high fee.　　However, if PayPal customers use BML services, PayPal can avoid paying this fee, thereby increasing the profit margin. According to DeWitt estimates, once BML services account for PayPal's total volume of 1%,paypal profit margin will be increased by 40 basis points, that is 0.4%.　　If the BML service accounts for 10% of PayPal's total trading volume, the latter's profit margin may increase by more than 4%. Draw the attention of the Government but Rulla and other analysts point out that despite the benefits, BML is also making ebay face new credit risks. "ebay's operations will become more complex because their current financial situation is at risk," said Bruyette & Woods analyst Sanchoy Sacrany (Sanjay Sakhrani), a brokerage Keefe. "Borrowing money, charging interest, and waiting for money, the business model risks more than simply charging for transaction processing fees." Especially in the 2008.After the financial crisis broke out, the risk of BML business model zoomed in when the default rate increased and some borrowers went bankrupt. The performance of financial stocks on the stock market amply demonstrates this. According to Thomson Reuters, Visa, which never borrows money, is now trading at 20 times earnings per share in 2012, while the foreign-borrowing American Express has a P/E earnings forecast of 13.5 times-fold earnings per share in 2012.　　Ebay shares are now trading at 17 times times earnings per share in 2012. So it's worth noting that ebay's stock valuations could be adversely affected if the BML business continues to expand, ultimately allowing investors to treat ebay as a lending firm. "If credit risk seriously affects ebay's valuations and PayPal's growth slows, it may have an impact on their earnings ratios and on valuations of other lenders," Rulla said. "In fact, BML has caused regulators to pay attention to ebay and PayPal. "There is a greater risk of bml to ebay at the regulatory level," Sacrany said.　　"Moreover, BML is not a licensed financial institution and is not allowed to borrow in the United States, and therefore relies heavily on other licensed lenders." To be sued when a consumer buys a product that BML provides a credit guarantee, the loan is issued by a financial institution that is filing with the regulatory body. Since September 2010, BML has been doing such operations through the WebBank bank.　　WebBank is a franchise in Utah State Industrial Bank. WebBank lends money to buyers at the point of sale and ensures that the merchant is paid.　　BML will buy these loans from WebBank so that they can get interest from the buyers, but if the buyer does not repay the money, then the BML will pay the bill. In its latest annual report, ebay warns that BML's trading volume may be affected by WebBank's limited borrowing capacity, or it could force ebay to get its own banking license. Ebay said it was a "time-consuming and laborious process that would allow us to be bound by various laws and regulations that could add new burdens to our compliance with these laws and regulations." "The California district Court has received a lawsuit alleging that a partnership with WebBank means BML acted as a bona fide borrower, thus violating California's laws, including usury laws." But the California district Court dismissed the usury charges involving bml late in 2010, and last year referred the case to the Utah State District Court.　　But ebay said in its annual report this year that breaches of the contract and several other allegations were not withdrawn. The impact of the P/E ratio: "These accusations are groundless and we will actively defend our interests." However, the law in this area is uncertain, if the other party wins, BML may be asked to change the way of business, pay a large amount of compensation, reduce the charges to customers,Which in turn has a negative impact on our business. PayPal spokeswoman Anuje Nayar Anuj Nayar said PayPal has a bank in Europe. He said: "Although we have no plans to change the status of our operations in the United States, but if the situation is forced, we will consider." Sacrany said: "Only if the P/E ratio suffers a greater impact, ebay may do so." If you are a bank, stock valuations tend to be lower. According to Thomson Reuters data, JPMorgan's shares are now 8 times times earnings per share in 2012, while Citigroup shares are less than 7 times times earnings per share in 2012. JPMorgan is the largest bank in the United States by assets. (Qing Chen)