A Wall Street analyst thinks he has the solution to the “eBay versus Carl Icahn” debate over whether to spin off PayPal: he says Google should buy eBay. Colin Sebastian of RW Baird is muddying the waters with a new proposal that Google acquire eBay, though one that shareholders will not be voting on at eBay’s annual meeting next month.
Sebastian explained in this CNBC video that Google lacks leadership in ecommerce, has struggled with payments, and has been losing the ecommerce search battle to rival Amazon. An acquisition of eBay and PayPal would be “a powerhouse combination for Google,” he said.
In a research note released on Monday, Sebastian wrote, “With activist investors recommending the split of PayPal from eBay, we believe a potentially more attractive option is missing from the discussion: Google acquiring eBay/PayPal would serve not only to “unlock” the value of the two segments, but also help solve two of Google’s competitive shortcomings.”
He was referring to Icahn’s pressuring eBay to spinoff PayPal. Carl Icahn has been publicly berating eBay CEO John Donahoe and its Board of Directors to help draw attention to his shareholder proposal (it’s working- the financial media are covering every move in the war of words).
Sebastian believes ecommerce and payments go together, but like many on Wall Street, he believes “the sum of parts valuation for eBay is greater than the combined company market value.”
“While we see potential benefits for PayPal operating independently, this scenario could prove very challenging for eBay, and as an alternative, a combination with Google could be a “best of both worlds” opportunity,” he said. “Together with eBay/PayPal, Google would be in a much stronger position to fend off well-capitalized competitors. Specifically, we note that Larry Page has shown that he is open to large deals, and both companies would likely be stronger together in the significant technology and user arms race unfolding with Amazon, Apple and Facebook.”
Another benefit to Google – the analyst said PayPal’s transaction data, credit card database, mobile presence and risk management would provide a major boost to Google’s advertising platform (e.g., enable more targeted ads, demonstrating advertiser return on ad spend (ROAS), among others).