eBay Inc (EBAY): They Should Rename it PayPal

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Tough to Break in

With an installed base of customers, PayPal clearly has a head start for entering the credit card business. However, it isn’t doing it alone. The company is partnered with Discover Financial Services (NYSE:DFS), which itself broke into the credit card ranks nearly 25 years ago. Thus, PayPal doesn’t have to build out its own network. That’s a good move for PayPal, but perhaps an odd move for Discover.

On the surface, Discover Financial Services (NYSE:DFS) is helping an upstart looking to eat away at its credit card business. While that’s true, Discover is also leveraging its payment network so it can get a piece of the action as a new entrant grows its business. And, with some 130 million potential customers already using PayPal, Discover seemingly chose a partner with good growth prospects.

That bodes well for the company, which has seen its top-line move steadily higher over the past decade. That said, the company changed its fiscal year starting in January, which confuses the picture somewhat. However, recent performance has been so strong that the dividend was increased over 40% in the first quarter. Although still not an income stock, that’s a nice vote of confidence from management.

Moving to the Big Leagues

eBay Inc (NASDAQ:EBAY)’s PayPal is a hidden gem, especially as it moves to enter the big leagues with Discover Financial Services (NYSE:DFS)’s support. Conservative investors should look at American Express Company (NYSE:AXP) because of its loyal and wealthy customer base. However, more aggressive types might like eBay. The company has a loyal base of customers that are quickly entering their working years. It isn’t a stretch to think they will put a PayPal card in their wallets. Discover, meanwhile, might be a way for less aggressive investors to play PayPal’s move into the real world without taking on the risk of a tech name. And Discover’s core business is performing well, too.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends American Express and eBay. The Motley Fool owns shares of eBay.

The article They Should Rename it PayPal originally appeared on Fool.com.

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