October 1, 2014
PayPal and eBay to go their separate ways
Carl Icahn got what he wanted. The activist investor has been pushing for eBay to spin off PayPal and yesterday brought news that the two companies will become standalone entities sometime in 2015.
"As independent companies, eBay and PayPal will enjoy added flexibility to pursue new market and partnership opportunities," said John Donahoe, president and CEO of eBay, Inc., in a statement. "We are confident following a thorough assessment of the relationships between eBay and PayPal that operating agreements can maintain synergies going forward."
Mr. Donahoe plans to step down after the companies split next year. Devin Wenig, president of eBay Marketplaces, will become the CEO of eBay. The new company will include eBay Marketplaces and eBay Enterprise.
Today, eBay has more than 149 million active buyers and sellers have more than 700 million live listings with about three-quarters of those being new. The company continues to face intense competition in the U.S. from Amazon.com and others. The recent record IPO of Alibaba and its entry into the U.S. with its 11 Main marketplace site could provide additional competition for eBay going forward.
PayPal announced that it has hired Dan Schulman, president of American Express’s Enterprise Growth Group, as its new president, effective immediately. Mr. Schulman, who held senior executive roles at AT&T, Priceline and Virgin Mobile before joining Amex, will become the CEO of PayPal when it splits from eBay next year.
According to eBay, PayPal is involved in one of every six dollars spent online globally. PayPal accounts grew 15 percent year-over-year during the last quarter. It has used acquisitions of companies such as Braintree and One Touch to advance its position in the mobile payments industry, where it will face increased competition from Apple Pay, MCX’s CurrentC and others.
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Recent Discussions
Discussion Questions
What will the separation of eBay and PayPal mean for the two companies? Is one more likely than the other to prosper as a result of the split?
Poll
Tough to say.
PayPal has already extended beyond eBay, so the question is how much freer will they be or did they need to be?
For eBay, I guess they lose nothing (but control). Whether they actually gain anything remains to be seen.
Although operating as two separate companies will be advantageous and prosperous for both, PayPal will benefit immediately. With the implementation of NFC technology and the announcement of Apple Pay, the acceptance of e-payments will accelerate. PayPal can now forge deals and processes directly with Amazon and other retailers to expedite the payment process that consumers have come to accept and trust. This was a smart move and will allow both companies to independently leverage their brand equity with digitally empowered shoppers.
Perhaps this will allow eBay to have better relationships with PayPal competitors in Asia and to a lesser degree for PayPal to develop better relationships with online retailers in Asia.
As for us here in North America, this seems more like a move to benefit stock holders than anything operational.
Neither will be able to blame what happens to them in the future on being tied together. I am not sure how being together constrained the growth of either, but neither will have to be concerned with those constraints now. They are each free to address their one competitive position.
PayPal has been growing faster than eBay’s heritage marketplace business, and will be unsaddled by debt upon its separation. (Full disclosure: My son works at Braintree, the mobile-payments company acquired recently by PayPal.) If you believe that the mobile-payment industry is about to explode, this is good news for PayPal. And the threat of Apple Pay is overstated, since PayPal (or Braintree) clients will generate revenue with every iPhone-enabled transaction.
The longer-term speculation—about either eBay or PayPal or both becoming acquisition targets themselves—is a valid one. Companies like Google and Amazon continue to compete against Apple and other providers of “one-stop shopping” technology.
Counter to common assumptions, mergers or acquisitions rarely pay off for the companies involved. One of the reason is that they are not thoroughly thought through strategically. “Just get it done,” says the CEO.
Splits or divestitures have exactly the opposite history. There is so much hand wringing and studying to make a decision like this because it “might look like something is failing,” that when the decision is made it is generally a good one. Companies that are not fully aligned in their business models operate better alone.
This will be good for both companies and especially for the stockholders.
It should mean increased competition and lower prices combined with better service. Ebay was so closely tied to PayPal that transactions in many cases were restricted to those in which PayPal was involved. Now, hopefully Apple and other systems will be adopted by eBay to provide competitive choice.
I see this as being a bigger win for eBay as a dilution of the traffic to PayPal will hurt PayPal. PayPal has been expending their reach recently and is being accepted as a payment method by many etailers. They have to make the jump to retail adoption but their current system will make this cumbersome.
I believe eBay should prosper more depending on how much of eBay they offer via IPO. If they elect to only IPO 15% of eBay, then things will favor PayPal in that nothing much will change at eBay and other pay systems will not be allowed to compete. The answer to this questions depends on your definition of “split”. If eBay elects to retain majority ownership, then eBay will continue to run things pretty much as is, which will benefit no one but eBay.
There is a need to maneuver for both companies. The combined companies can, and most likely do, clutter the decision tables with important details causing delays, omissions and inclusions of erroneous content that confuses the implementation of necessary improvements for either or both markets.
In addition, this is a weak economy and for two separate markets to have a jack of all trades leadership is foolishness. What is important for investors to consider is the long term viability of either company to succeed.
I am of the opinion that the Alibabas of the world are going to be a short term need for more and more small and start-up companies. The Googles of this world are positioning themselves to make sure of this with far more comprehensive and user friendly software suites for the public and commerce.
At the same time, banking as well as currencies are under more pressure to conform at reasonable costs to the market place. The long term looks bleak for banks as we know and use them today. Is Bitcoin a disease or the cure? In either case, Paypal is already a cost factor closely aligned to the old ways and becoming too rich for most of the planet, bridled with smaller margins, to use. And we are, after all, are a world economy whether the governments like it or not.
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Tough to say.
PayPal has already extended beyond eBay, so the question is how much freer will they be or did they need to be?
For eBay, I guess they lose nothing (but control). Whether they actually gain anything remains to be seen.
Although operating as two separate companies will be advantageous and prosperous for both, PayPal will benefit immediately. With the implementation of NFC technology and the announcement of Apple Pay, the acceptance of e-payments will accelerate. PayPal can now forge deals and processes directly with Amazon and other retailers to expedite the payment process that consumers have come to accept and trust. This was a smart move and will allow both companies to independently leverage their brand equity with digitally empowered shoppers.
Perhaps this will allow eBay to have better relationships with PayPal competitors in Asia and to a lesser degree for PayPal to develop better relationships with online retailers in Asia.
As for us here in North America, this seems more like a move to benefit stock holders than anything operational.
Neither will be able to blame what happens to them in the future on being tied together. I am not sure how being together constrained the growth of either, but neither will have to be concerned with those constraints now. They are each free to address their one competitive position.
PayPal has been growing faster than eBay’s heritage marketplace business, and will be unsaddled by debt upon its separation. (Full disclosure: My son works at Braintree, the mobile-payments company acquired recently by PayPal.) If you believe that the mobile-payment industry is about to explode, this is good news for PayPal. And the threat of Apple Pay is overstated, since PayPal (or Braintree) clients will generate revenue with every iPhone-enabled transaction.
The longer-term speculation—about either eBay or PayPal or both becoming acquisition targets themselves—is a valid one. Companies like Google and Amazon continue to compete against Apple and other providers of “one-stop shopping” technology.
Counter to common assumptions, mergers or acquisitions rarely pay off for the companies involved. One of the reason is that they are not thoroughly thought through strategically. “Just get it done,” says the CEO.
Splits or divestitures have exactly the opposite history. There is so much hand wringing and studying to make a decision like this because it “might look like something is failing,” that when the decision is made it is generally a good one. Companies that are not fully aligned in their business models operate better alone.
This will be good for both companies and especially for the stockholders.
It should mean increased competition and lower prices combined with better service. Ebay was so closely tied to PayPal that transactions in many cases were restricted to those in which PayPal was involved. Now, hopefully Apple and other systems will be adopted by eBay to provide competitive choice.
I see this as being a bigger win for eBay as a dilution of the traffic to PayPal will hurt PayPal. PayPal has been expending their reach recently and is being accepted as a payment method by many etailers. They have to make the jump to retail adoption but their current system will make this cumbersome.
I believe eBay should prosper more depending on how much of eBay they offer via IPO. If they elect to only IPO 15% of eBay, then things will favor PayPal in that nothing much will change at eBay and other pay systems will not be allowed to compete. The answer to this questions depends on your definition of “split”. If eBay elects to retain majority ownership, then eBay will continue to run things pretty much as is, which will benefit no one but eBay.
There is a need to maneuver for both companies. The combined companies can, and most likely do, clutter the decision tables with important details causing delays, omissions and inclusions of erroneous content that confuses the implementation of necessary improvements for either or both markets.
In addition, this is a weak economy and for two separate markets to have a jack of all trades leadership is foolishness. What is important for investors to consider is the long term viability of either company to succeed.
I am of the opinion that the Alibabas of the world are going to be a short term need for more and more small and start-up companies. The Googles of this world are positioning themselves to make sure of this with far more comprehensive and user friendly software suites for the public and commerce.
At the same time, banking as well as currencies are under more pressure to conform at reasonable costs to the market place. The long term looks bleak for banks as we know and use them today. Is Bitcoin a disease or the cure? In either case, Paypal is already a cost factor closely aligned to the old ways and becoming too rich for most of the planet, bridled with smaller margins, to use. And we are, after all, are a world economy whether the governments like it or not.