If you‘ve purchased anything online in the last two decades, chances are you‘ve used PayPal. The payments company has become a ubiquitous part of ecommerce and online transactions. But how did PayPal get its start? Who owns it today and how valuable is the company? What does the future look like for this fintech pioneer? This article dives into the history, ownership changes, valuation, revenue sources, and growth strategy of PayPal over the years. Let‘s take a closer look at how this startup transformed into a global payments powerhouse.
The Early Years: Revolutionary Beginnings and Dot-Com Era Growth
PayPal‘s origins trace back to 1998 when Max Levchin, Peter Thiel and others founded a company called Confinity. Their initial goal was to enable users to beam money between PalmPilot devices using encrypted wireless communications.
Meanwhile, Elon Musk started an online bank called X.com, aiming to disrupt financial services. X.com and Confinity merged in 2000, combining Musk‘s financial expertise with Levchin‘s innovation.
This was the turbulent dot-com era, but digital payments were taking off. Ecommerce was still nascent, but growing rapidly. PayPal tapped into this market by allowing people to easily send money via email.
By 2001, the merged company had over 1 million customers and formally adopted the PayPal name we know today. But challenges lay ahead.
Going Public and Being Acquired by eBay
PayPal went public in February 2002 when dot-com stocks were volatile. Its IPO valuated the company at $1.2 billion. This was a major milestone, but also attracted some unwanted attention.
In fact, days after PayPal‘s IPO, the company was hit by massive fraud attacks, driving thousands of customers away. PayPal lacked adequate fraud protection in its early infrastructure.
To regain trust, PayPal brought in industry veteran David Sacks as COO. Sacks helped save PayPal from demise. Still, the company was bleeding cash just months after its public debut.
That‘s when eBay, the leading online auction site, stepped in. In July 2002, eBay acquired PayPal for $1.5 billion.
This acquisition allowed eBay to offer integrated payments, driving more transactions. Under eBay, PayPal cemented its position as the preferred online payment method.
Spinning Off to Become an Independent Company Again
PayPal remained an eBay subsidiary from 2002 to 2015. In this time, it grew exponentially as online commerce expanded.
However, by 2014, eBay decided to spin off PayPal to unlock more shareholder value. Some key stats on PayPal at time of spin-off:
- Total payment volume: $235 billion
- Revenue: $8 billion
- Mobile payment volume: $46 billion
The spin-off was completed in July 2015. PayPal returned as an independent publicly traded company, valued at nearly $50 billion. Dan Schulman took over as President and CEO.
This turned out to be a smart move. As of 2023, PayPal‘s market cap has soared to around $90 billion, while eBay‘s market cap stands at just $30 billion. The spin-off allowed PayPal to pursue aggressive growth strategies as a standalone fintech leader.
Who Are the Major Shareholders Today?
Today, PayPal is owned by various institutional and individual investors, with no single majority owner. Here are the major shareholders as of early 2023:
- The Vanguard Group – 8.4%
- BlackRock Inc. – 6.7%
- State Street Global Advisors – 3.9%
- Comprehensive Financial Management – 2.6%
- Geode Capital Management – 1.8%
- Retail investors – Around 18%
While The Vanguard Group and BlackRock hold the largest stakes, public shareholders collectively own around a fifth of PayPal‘s stock. The diversified ownership structure has worked to PayPal‘s benefit over the years.
Just How Much is PayPal Worth Today?
In 2022, PayPal generated a record $27.5 billion in total revenue, up 10% year-over-year. Its net income came in at $5.3 billion.
PayPal‘s market capitalization sits around $90 billion as of early 2023. To put this in perspective, here‘s how PayPal‘s valuation has grown over the years:
|2002 (IPO)||$1.2 billion|
|2002 (eBay acquisition)||$1.5 billion|
|2015 (spin-off)||$46 billion|
Some analysts predict PayPal could be worth over $200 billion in the coming years. The company has established itself as one of the most valuable fintech brands globally.
Diving Into PayPal‘s Business Model and Revenue Streams
So how exactly does PayPal make money? Here is a breakdown of PayPal‘s key revenue sources:
Transaction fees – The bulk of revenue comes from fees on payment transactions between buyers and sellers. This fee is usually around 2.9% plus a fixed fee per transaction.
Currency conversion fees – PayPal charges a percentage on transactions involving currency conversions.
Monthly fees – Some merchants are charged monthly subscription plans instead of per transaction fees, depending on volume.
Braintree – PayPal‘s mobile payments subsidiary also contributes transaction fees.
Other services – Fees from services like PayPal Credit, PayPal Business Loans, and more.
In 2021 alone, PayPal processed $1.25 trillion in total payment volume from its 436 million active accounts. These astronomical numbers translate to strong revenues.
PayPal‘s scale and dominance in the market allows it to retain high profit margins on fees. Network effects create a frictionless payments ecosystem both online and via mobile.
Expanding Its Capabilities Through Strategic Acquisitions
A key part of PayPal‘s growth has involved strategic acquisitions to expand its capabilities:
Braintree – Acquired the mobile payments platform Braintree in 2013 for $800 million. Braintree powers payments for Uber, Airbnb, etc.
Venmo – Braintree had acquired Venmo in 2012, making it part of PayPal in 2013. Venmo now has over 80 million users.
Honey – Acquired the online coupons platform Honey for $4 billion in 2019.
Hyperwallet – Bought the payout platform Hyperwallet for over $400 million in 2018.
Xoom – Acquired the international money transfer firm for $890 million in 2015.
These acquisitions have allowed PayPal to expand from basic payments to provide a full suite of financial services to consumers and businesses.
Future Outlook – PayPal‘s Prospects in the Fintech Industry
PayPal has ambitious plans for the future, aiming to reach over 750 million active accounts by 2025. It has several key priorities:
Launching new products like cryptocurrency trading, buy now pay later services, offline payments
Acquiring younger users through Venmo and Honey
Expanding internationally, especially in China and India
Competing with Apple, Google, Amazon in the payments space
PayPal has built an enormous ecosystem over two decades. While new challengers are emerging, PayPal‘s brand reputation, loyalty, and experience give it an edge.
The world is still in early stages of digital payments adoption. With ecommerce growing globally, digital wallets becoming mainstream, and online banking expanding, PayPal stands to benefit tremendously.
PayPal survived the dot-com crash and split from eBay to emerge as a stronger standalone company. The pioneer has continually shaped and dominated the payments industry. As the platform becomes increasingly embedded in daily transactions, PayPal seems poised for many more years of prosperity.