PayPal Acquires Duff Research

E-commerce service provider eBay Inc.’s ( EBAY - Analyst Report ) existing payment platform, PayPal has acquired Duff Research. The terms of the deal were not disclosed.

Sunnyvale-based Duff Research is a mobile app development company and has built about 40 mobile apps for companies that include TiVo Inc. ( TIVO - Analyst Report ) and other Fortune 500 companies. The company provides software development and user experience expertise for the mobile app space.

Management stated that all 18 engineers from Duff Research will join the PayPal technology team to help PayPal's main digital wallet product become more user friendly.

This acquisition will help to support PayPal’s dominant position in mobile payment systems. The acquisition will likely put PayPal in a better competitive position against rival mobile payment systems such as Google Inc’s ( GOOG - Analyst Report ) digital wallet, Isis, Square and others.

As smartphone migration continues, eBay is seeing great opportunities in the mobile space. The Duff Research acquisition is yet another move by PayPal to strengthen its position in the mobile payments space.

PayPal, which accounts for almost half of eBay's annual revenues, has expanded beyond its online payments service. Its point-of-sale technology is gaining a lot of traction as the company has already established partnerships with 23 reputed brands, including Home Depot Inc. and Office Depot Inc. of which 12 have agreed to accept PayPal as a payment mode.

This January, PayPal announced that it will work with NCR to integrate PayPal into several of its products, including NCR’s Convenience-Go (C-Go) app for gas stations and convenience stores. This will allow shoppers to buy fuel and food and pay for car washes using their smartphones.

We believe that eBay is taking all the necessary measures for continued growth in the mobile payment business in the near future. Both Payments and Marketplaces are showing improving trends compared with the year-ago quarter, indicating its changing business profile.

Aided by growth in its PayPal business and mobile commerce, eBay recorded a strong fourth quarter with both revenues of $3.99 billion and earnings of 63 cents exceeding expectations. eBay’s PayPal remained the star performer, generating total payment volume (TPV) growth of 18.0% and 24.3%, respectively from the previous and year-ago quarters. PayPal added nearly 2 million accounts a month in the fourth quarter, representing the company’s fastest active account growth rate in years.

Though eBay’s payment business shows great promise, competition may be expected to pick up as banks and other companies announce their own payment systems and Googledigital wallet gathers steam.

Currently, eBay shares carry a Zacks Rank #3 (Hold). Online travel company, Priceline.com Inc. ( PCLN - Analyst Report ) , has a Zacks Rank #2 (Buy) and is worth considering.