Ina Steiner EcommerceBytes Blog
News and insight focusing on ecommerce.
by Ina Steiner, Editor of EcommerceBytes.com
Wed Jan 22 2014 16:46:06

Should eBay Spin Off PayPal?

By: Ina Steiner

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Carl Icahn wants eBay to spinoff PayPal into a separate company. The idea has been batted around before now, but thanks to Icahn's new proposal, eBay now has to deal with it publicly. (You can read what eBay had to say thusfar about the Icahn proposal in the fourth quarter earnings release.)

In fact, eBay said today it has explored in depth a spinoff or separation of PayPal, but the Board of Directors does not believe breaking up the company is the best way to maximize shareholder value.

"As part of eBay Inc., PayPal is able to leverage the company's technology capabilities, commerce platforms and relationships with retailers, brands and large merchants worldwide. Payment is part of commerce, and as part of eBay, PayPal drives commerce innovation in payments at global scale, creating value for consumers, merchants and shareholders."

But more interesting is what a separation would mean for online sellers (and buyers). Would PayPal continue to benefit from eBay's requirements around the use of PayPal on its marketplace? Would disputes be more difficult to resolve, or would the process become more transparent?

What would be the impact on your business if PayPal was spun off of eBay?

eBay spokesperson Ryan Moore said eBay CEO John Donahoe will talk about the board's take on Carl's proposal during the conference call coming up this afternoon - we'll be tuning in to learn more.

Here's a piece of a slide from the eBay earnings slideshow coming up shortly.


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Perminate Link for Should eBay Spin Off PayPal?   Should eBay Spin Off PayPal?

by: nsc This user has validated their user name.

Thu Jan 23 07:17:57 2014

The fact that Icahn has declared his intention to add two members to the BoD at least makes public what observers have known for a long time -- eBay has a mediocre management that has squandered immense opportunities and done jack squat for shareholders.

Perminate Link for Should eBay Spin Off PayPal?   Should eBay Spin Off PayPal?

This user has validated their user name. by: Rexford

Thu Jan 23 07:20:26 2014

"but the Board of Directors does not believe breaking up the company is the best way to maximize shareholder value"

But they do believe in keeping John Donahoe around as an instrument (or should I say "tool") to maximize shareholder value.

Laughable.  

Perminate Link for Should eBay Spin Off PayPal?   Should eBay Spin Off PayPal?

by: FREDDY This user has validated their user name.

Thu Jan 23 09:11:48 2014

@ Rexford.  Agree with you 100%

I cannot see how ebay and Paypal can be split. The stock would surely take a hit. I think that is how many of them make their money - that is through the stock options.

Think maybe Paypal can do okay on it's own. Well known name etc.. However, they might have to be regulated to keep doing the business as usual.
I wonder if Paypal does get split will Bill Me Later, Inc go with Paypal or stay with ebay??

If that happened, ebay will have to change the ways they do business or die almost immediately. Raising prices will almost be a certainty, also, will no doubt be offset with even less sellers.  Maybe JD has enough Diamond sellers lined up so he doesn't have to worry.

Donahoe made a comment about more acquisitions. Is it that he is looking for revenue for any possible source???  I think if ebay went back to the original feedback system, NO more unrealistic promises re deliver, STOP ''trying'' to be one up on Amazon all the time, Fair return policy and Do something with the search engine.

The more glitches and purges and ridiculous policies just hurts ebay and helps Amazon, Etsy, Ecrater etc.. When they lose sellers they lose just as many and probably more buyers.
I wonder if the board keeps Donahoe around because no one else wants the job?  When you give your boss a 3 year turnaround deal and you are no where close after 6 years, why do you still have your job???

Amazon is doing great and keeps growing with the third party sellers. Wonder if Jeff sends John a nice Christmas present every year. With ebay, every seller including the small occasional sellers brings in revenue. For the most part it is all automated. If the board wants to get rid of the flea market side, why not just split ebay into flea and high end box stores????? Same sight - just click into which one you want. Buyers who are looking for a $1.00 cell phone case or similar item or a vintage lunch box are usually not interested in a $300.00 handbag or pair of jeans.

The only way I see a split is by the board receiving an offer they cannot refuse.  They don't have to worry about government interference  until possibly 2016. ebay not being high on a  list it would most likely be 2017.

Perminate Link for Should eBay Spin Off PayPal?   Should eBay Spin Off PayPal?

by: Cyclestripper This user has validated their user name.

Thu Jan 23 09:16:23 2014

Not sure Icahn is still sound of mind at his advanced age. It is doubtful anything he suggests would be anything but in his very short term best interest.

That's really the point. Spinning off Paypal would be in the shareholders very short term best interest. There would be an increase in activity that would likely increase the share price and allow many shareholders to dump the stock in both companies at a profit.

Long term is unclear but Paypal volume is largely dependent on ebay transactions and overnight interest income. Paypal, without ebay, might be a much smaller company.

Ebay might actually benefit from accepting payments more like other ecommerce sites. Note that Amazon does not accept paypal and really has no incentive to do so. Ebay, without paypal, might also be forced to think more about the marketplace and that change in focus might benefit sellers.

As to Donahoe and Swan, they are both so wealthy at this point that it's more about the game than anything else. However, their egos might force them to move on if the companies split. THAT would be a good thing.

IMHO, as always.

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by: 1beck3 This user has validated their user name.

Thu Jan 23 10:08:30 2014

"Without paypal, ebay is finished"

You do know where PayPal generates the majority of it's revenue, don't you?

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by: ebay refugee camp This user has validated their user name.

Thu Jan 23 10:16:50 2014

Spin off their bonus checks and make them work for a honest dollar

Perminate Link for Should eBay Spin Off PayPal?   Should eBay Spin Off PayPal?

This user has validated their user name. by: Marie

Thu Jan 23 10:18:50 2014

I think JD would and does have a real problem with spinning PP off due to PP accounts for a good portion of profit on the Ebay financials.  He'd have to be prepared to what and how the financials would present.

Depending on how they spun things off, I see no reason why Ebay & PP can't share information, much as they do now.  It is just all in how things are structured.  Certain requirements would have to be met, but it is still doable.

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by: 1beck3 This user has validated their user name.

Thu Jan 23 10:25:11 2014

No doubt, Icahn's track record speaks for itself. 31% return from his fund last year.

That being said, he's losing steam.

Look no further than his failed bid at Dell and ebay is much healthier than Dell.

Icahn has said that spinning off PayPal is a "no-brainer". He recently said the same thing about Apple stock.

Yet, Icahn didn't start acquiring Apple stock until it was somewhere around $400. He didn't see Apple as that "no-brainer" at $85 when the iPhone was in it's infancy?

When Icahn has acquired board seats and imposed his agenda on a public company, he has typically had a larger position in the company (anywhere from 4-10% ie Chesapeake Energy) but his stake in Apple and ebay is less than 1%.

He's asking Apple to return $50 billion to shareholders in the form of buybacks which represents around 33% of Apple's free cash. This $5 billion dollar buyback represents almost 38% of ebay's free cash. Icahn should find no flaw in this move by ebay.

Given that ebay generated $3.7 billion in free cash this year alone and the company's growth is in the mid teens and pointing up, Icahn's proposals will most likely fall on deaf ears.

Perminate Link for Should eBay Spin Off PayPal?   Should eBay Spin Off PayPal?

by: Steevo This user has validated their user name.

Thu Jan 23 10:46:35 2014

Philip, Paypal is advertising business loans.  They may do payday loans but I complained to the state about the business loans.  Made by a money transmitter!  

And the law does not allow a money transmitter to do anything with transmitted money except spit it out at the other end.  It's not allowed to ''hold'' funds for any amount of time at all, by law, except on the request of the party who sent the funds.  It's illegal, for example, for Paypal to hold funds sent by Susie to John, unless on the request of Susie. It's illegal to hold Susie or John's funds on the sayso of Ebay, for example.  

I discussed this last week with the state official.  It's right there in the law.

I asked my congressman, the Office of the Controller of the Currency, and that state regulator to bring Paypal under full banking regulation.  I asked them to seize Paypal until they are brought under full banking regulation.  I was ignored.  

We need to make more noise. We don't want unregulated banking operations in the US. The EU made them become a bank.  They were forced.  

Perminate Link for Should eBay Spin Off PayPal?   Should eBay Spin Off PayPal?

by: Mr. Me This user has validated their user name.

Thu Jan 23 11:35:19 2014

eBay should "spin off" its auction busines to a worthy and unobtrusive new owner.

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by: Ogri This user has validated their user name.

Thu Jan 23 12:34:13 2014

Guess any decision like spinning off Paypal is a difficult call to make as don't know how much the two parts (Ebay and Paypal) complement each other.  Or, if Paypal was independant how much better it might do not having the restriction (ebay competition not wanting to use) of being owned and contributing to the profit of ebay.

Comparing with a small business that has fast turnover high margin products, and slow turnover low margin products.  If sold off the part of the business that included the high margin stuff, could then concentrate on improving return from the low margin stuff with some of the fat profit made from the sale.  But don't know how much the low margin products contribute to customers buying the high margin (and vice versa) so selling would be a calculated gamble - a gamble which Mr Icahn is probably good at.

Mr Alibaba could be eyeing ebay right now thinking about a cheap purchase to globalise his consumer business.

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by: Cavewomansman22 This user has validated their user name.

Thu Jan 23 13:29:39 2014

This article, it seems, is coming from the viewpoint of SHOULD eBay spin off PayPal, whereas I read it as Icahn wanting to FORCE eBay, somehow, to spin it off (the article mentioned how much stock Icahn has in the company and the people he has on the board as if it were a veiled threat). Am I wrong? It would be suicide for eBay to separate itself from PP while PP could probably operate on its own, I guess, for a while anyway.

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This user has validated their user name. by: Rexford

Thu Jan 23 14:37:07 2014

Icahn versus Donahoe. Two men looking out for their own self interests.  It will surely be interesting to watch if Icahn continues to throttle up the spin-off talk.

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This user has validated their user name. by: Philip Cohen

Thu Jan 23 17:04:52 2014

@Steevo, You will get no argument from me about eBay/PayPal being a most unscrupulous corporate entity. That’s not the point here.

My previous comment applies to any “lending” that “PreyPal” appears to do; agreed, “PreyPal” is licensed only as a money transmitter and is not licensed to make interest bearing loans to the public; as I said before “PreyPal” will be “making” these loans, via book entries, with another appropriately licensed financial institution, Bancorp Bank in Utah, I believe; I think that you will find that it is all perfectly legal under the state of the current law …

Apparently, there is no law against anyone offering such loans—as long as they are ultimately “made” by an appropriately licensed financial institution …

I suggest that you read the micro type at the bottom of any page where “PreyPal” appears to be offering such loans …

Perminate Link for Should eBay Spin Off PayPal?   Should eBay Spin Off PayPal?

by: E-pins This user has validated their user name.

Thu Jan 23 17:18:17 2014

1beck3 twitter.com/1beck3
     
Thu Jan 23 10:08:30 2014
''Without paypal, ebay is finished''

''You do know where PayPal generates the majority of it's revenue, don't you?''

Apparently you don't. Or you would have given the numbers.

http://recode.net/2014/01/23/ebay-ceo-says-icahn-paypa
l-spinoff-makes-no-sense/

''eBay
is responsible for more than 30 percent of PayPal’s revenue and more than 50 percent of its profits, the company disclosed.

One can also argue that PayPal is eBay’s best asset; it’s no wonder that eBay management and its board do not want to lose it. PayPal revenue currently comprises 40 percent of eBay’s total revenue. And, according to at least one analyst — R.W. Baird’s Colin Sebastian — more than half of eBay’s market value should be attributed to PayPal.''

Unless PayPal's management is completely incompetent, PayPal would survive. The IPO hype would put it's starting stock price through the roof.

eBay possibly losing half it's stock price? Not too good. Don't fear, the IPO profits would soften the blow to the eBay board.

Irony Alert - Were eBay stock price higher, say like at Amazon stock price, this low cost ''take over'' would not be possible. Too expensive.

As to Carl Icahn?

http://files.shareholder.com/downloads/AMDA-NOTM6/2916140846x0
x716520/64E1895A-0E6E-45B0-AD92-E0E1D9C2B1AD/IEP_January_2014_-_Roadshow_vF.PDF

He
and his company are doing much better than his eBay critics would lead you to believe.

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by: 1beck3 This user has validated their user name.

Thu Jan 23 22:52:45 2014

That was my mistake using revenue instead of profits. But, it's further evidence the problems PayPal would have without ebay.

70% of your revenue generating less than half your profits?

And the assumption is if the two split, ebay would open up payment processing to other companies reducing PayPal's most profitable revenue and reducing their profits.

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This user has validated their user name. by: Ric

Thu Jan 23 23:24:02 2014

  ".....when asked if he would keep Donahoe, Icahn said the jury was out, but then proceeded to hammer Donahoe's handling of the Skype divestiture. He also asked why eBay's stock price was up 70% in his three years as CEO while Amazon's was up 450% and Visa's was up 270%. "  "If you're going to say Donahoe's doing a great job, I would question that."

One does not need Icahn's billions to come to that conclusion, rather, they only need experience as an eBay seller.

Perminate Link for Should eBay Spin Off PayPal?   Should eBay Spin Off PayPal?

by: spirit-of-shiloh This user has validated their user name.

Fri Jan 24 05:36:57 2014

It would be wonderful, then hopefully sellers could be the boss of how thay wished to be paid.

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This user has validated their user name. by: permacrisis

Fri Jan 24 10:07:37 2014

What would a post-split ebay television commercial sound like? Who would it target- buyers or sellers?  

Even if Donahoe goes, we are still stuck with Wenig who is basically after the same outcome-- a standardized, consolidated marketplace where products seem to come from them, not the seller.

Not mentioned here are the possible effects of this split on other marketplaces, even mothballed ones like Overstock Auctions  or  Yahoo Auctions. A good, auction-centric ad campaign could whet the publics appetite for auctions again, as we know from the storage auction reality shows that they ARE interested.

Lastly, divesting Paypal would require a massive internal rewrite of its code to move away from the present $1-a-share architecture which has enabled it to circumvent so many banking laws.

Perminate Link for Should eBay Spin Off PayPal?   Should eBay Spin Off PayPal?

by: pace306 This user has validated their user name.

Fri Jan 24 10:25:11 2014

There are only 2 groups of people who understand the
incestuous relationship between eBay and Paypal - 1 wont speak, and one cant speak.

JD told his employeed to be quiet and ignore Icahn - best not to let the truth about things slip out.

Secondly - eBays users (sellers). They arent being asked what REALLY goes on - note that the article only mentions the usual talking heads, who know nothing about what goes on in the trenches.

Paypal (after speaking to numerous employees) is doing just fine and would do fine on its own. Its in the black, has "insurance" that eats the losses they incur (the losses USED to show up on eBays books - but that stopped 2-3 yrs ago), and for them - the sky is the limit.

Yes they do alot of "shtik", yes their operations boarder (in alot of cases) on the margins of leagality - but 1) eBays corporate lawyers shield them (the same jerks that wrote eays TOS oversaw Paypals)) 2) they are actually interested in change and improvement. They call me, email me, survey me to death on EVERY encounter with them - and in the last 2 yrs - I havent lost ONE Paypalk issue - they seem to be concerned about my funds. I may be lucky (read not in the majority here on this) but it seems to me that as apposed to eBay (who frankly just doesnt give a damn) Paypal is at least TRYING to improve.

eBay? without Paypals money holding ability ie the power to FORCE you to do as they please - they are sunk. HOWEVER - I think we all know that if the $$$ are big enough, JD will copy Amazon and bring some type of payments in house and spin off Paypal - just "cause the money from selling it would be too great for JD to ignore. He cold then buy one of the Caymans like hes always wanted to, have 365 days a year of "thinking days", and unload the shrew of a wife ... all at the same time.

I dont put any of this past anyone of them - there are pros n cons to selling off Paypal - but I see paypal better off then eBay should it happen ... but then without seeing REAL numbers - theres no way to know how much of Paypals revenue is REALLY from eBay.

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