eBay (Finally) Announces PayPal Split

It won’t be long before we see PayPal split from its parent company, auction and e-commerce marketplace eBay (Nasdaq: EBAY).
Last week eBay formally announced its intention to spin off PayPal in an initial public offering – IPO – sometime in 2015.
PayPal began life when Elon Musk’s X.com bought Coinfiniy in March 2000. (Yes, that Elon Musk.) Recognizing that the PayPal division of Coinfinity was the most promising division of his new company, Musk focused solely on and changed the company’s name to PayPal. The company’s growth exploded and, recognizing PayPal’s essential role in the success of its auction marketplace, eBay bought it in 2002.
Since then, PayPal has been the backbone of eBay’s auction & eCommerce marketplace. And while eBay’s marketplace seems perfectly healthy, PayPal’s prospects continue to shine brighter and brighter.
The idea of splitting off PayPal isn’t new for eBay.
In fact, the topic made national headlines earlier this year when activist investor Carl Icahn of Icahn Enterprises (Nasdaq: IEP) announced a 2.2% stake in eBay. At the time he was pushing hard for a PayPal split. But then something changed.
Not long after, Carl Icahn reported that he had spoken with eBay CEO John Donahue and, as a result of the conversation, decided not to push the issue of splitting off PayPal. eBay, for its role, agreed to put an additional independent director on its board.
Frankly, this news has been a long time coming.
I first wrote about this topic in early 2013 when I noted that PayPal seemed to be outgrowing its parent company. And I mean that literally.
Back then PayPal’s annual growth rates ranged from 22% and 29%. Compare this to the growth of eBay’s other business divisions – between 10% and 16% – and you can quickly see my point.
The fact is this: Sure, there are obvious synergies between the online auction giant and its payments division, responsible for ensuring seamless, secure and convenient payment processing for eBay customers.
But as PayPal grows into a payment-processing powerhouse with a scope beyond that of just eBay’s marketplace, the two companies are simply growing apart.
The chart below illustrates this well.


Source: Business Insider

I used this chart in my July article and I’m using it again because it drives home the point that at some point – soon – PayPal’s revenues will eclipse the revenues of eBay’s entire marketplace.
This chart illustrates PayPal’s growing independence from eBay, further convincing me that it’s time for eBay and PayPal to part ways. As you’ll notice, PayPal now depends on eBay’s marketplace for only around 25% of its revenues. While this certainly isn’t insignificant, it absolutely suggests that PayPal is growing more independent by the day.

Source: Business Insider

In June I wrote this of the eBay/PayPal split idea:

“PayPal grew 25% in 2012 and 18.5% in 2013 while eBay only grew 12.8% and 12.6% respectively. I think people want to invest in these companies independently of each other. I think eBay should IPO PayPal.”
Soon, it seems that we will be able to invest in these companies separately. And investors who want the exposure to mobile payments with double-digit growth will finally have access to that investment after the PayPal split from eBay.

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