PayPal vs. iPayment

With the release of iPayment's first quarter results this morning, it's interesting to do a comparison of it with PayPal's first quarter results.

Coincidentally, they both reported essentially the same payment volume for the quarter: $6.2 billion. PayPal's payment volume growth in the first quarter was 44 percent while iPayment's grew 118 percent including recent acquisitions.

But the revenue yield from that quarterly payment volume was quite a bit different between the two. On the top line, PayPal's net revenues for the quarter were $233 million; iPayment's revenues were $163 million.

Note that both companies include the cost of interchange in their revenues (unlike most of the other publicly traded merchant acquirers) -- so any comparison to other companies has to net out interchange expense up front. On a percentage basis, PayPal's interchange expense is lower per dollar of payment volume because of its hybrid funding model -- where slightly more than half of its funding activity is sourced from credit card accounts.

While they're really different businesses (one operating exclusively in the ecommerce space, the other in the small merchant physical point of sale space), it's interesting to also look at valuations. iPayment currently has a market cap of about $650 million; PayPal was acquired by eBay in 2002 for about $1.5 billion (in eBay stock) and recently an analyst commented that PayPal was probably worth $6-7 billion.

Do you have any more insights to offer re: comparing these two companies? Comments are open for this posting.

[Update: iPayment stock got hammered following the earnings announcement and conference call this morning - closing down over 10 percent and reducing its market cap to $580 million.]