Finally, 12 years of relationship came to an end with eBay and Paypal determined to split their ways after almost an year of debate. Both will become separately traded public companies by the middle of year 2015, with current eBay CEO John Donahoe stepping down from his position.
After making this announcement official, next year President of eBay Marketplaces, Devin Wenig, will become CEO of the new eBay. While Dan Schulman, currently the president of the Enterprise Growth Group at American Express, will become PayPal’s CEO.
What’s the story behind the split?
Earlier this year, during eBay’s 4Q13 earnings call, Carl Icahn (holding 2.5% stake in the company) proposed to split the PayPal business from eBay. He was supported by many analysts including Former Paypal Executive, David Sacks and early Paypal investor, Elon Musk.
“When PayPal sold to eBay, eBay’s transactions were roughly two-thirds or more of PayPal’s volume. But today, eBay is a third or less of PayPal’s volume, and it’s decreasing quite a bit. As of now, the non-eBay portion is growing a lot faster than the eBay portion.” said David to Bloomberg in an interview six months back.
Paypal was believed to be worth more than USD 38.2 billion as a takeover target post separation considering the growing mobile payments business. Also, Carl pointed out that corporate governance at eBay is dysfunctional and it has the worst corporate governance he’s ever seen.
eBay’s Reaction on the decision
Initially, the company’s CEO and board of directors were against the proposal as it was believed that they have been successful exactly because PayPal and eBay are together.
However, in a recent interview with Forbes’ John said that this move is not a reaction to any short term impetuous. And both can capitalize on the available opportunities more aggressively as two separate companies.
“As we’ve continued our annual assessment, looking forward three to five years about how we can best position eBay and PayPal, we think the competitive position and the competitive environment of commerce and payments are going through accelerating change. That creates new sets of opportunities and challenges for both eBay and PayPal and (we believe) that operating independently will give eBay and PayPal focused strategic flexibility and an ability to move quickly and decisively in this changing environment,” said John to CNBC.
Challenges Ahead as separate ventures
eBay’s payments business unit has played a crucial revenue in improving company’s overall revenue every year. Even in the last quarter, wherein Y-o-Y revenue rose to 20% for payments, it was only 9% for its core marketplace business. On the flip side, Paypal’s almost 50% profits and 30% revenues are derived from eBay’s marketplace.
Clearly, the foremost challenge for new eBay would be to revive its revenue building strategies.
For Paypal, it is an opportunity to make new partnerships with other prominent online retailers and take advantage of the ongoing growth in mobile commerce. As per the analysts, mobile payments could spike to USD 58.4 billion by 2017 from just USD 1 billion last year. Also, Paypal can now build independent strategies to combat new rivals like Apple Pay, Stripe, Square, etc., and focus more on payment innovation.
However, Carl Icahn believes that Paypal should consider either acquiring other companies or selling out itself, to emerge as a strong player. “In light of the development of strong competition such as the advent of Apple Pay, the sooner these consolidations take place, the better,” said Icahn.
What other’s have to say?
There have been a mixed reactions so far. Almost all agree that both the companies have garnered certain advantages to each other over these years, But still, the spin-off has been welcomed heartily by the industry. Here are few twitter reactions:
— Henry Blodget (@hblodget) September 30, 2014
Kudos to the eBay board and @Donahoe_John for deciding to split PayPal into an independent company. Very exciting and welcome news.
— David Sacks (@DavidSacks) September 30, 2014
— bamajr (@bamajr) September 30, 2014
iamWire Take: We really hope that Paypal will not repeat the same mistakes again and will reap its second chance to the fullest. It would be really worth watching for this company to grow to the top charts in payment space as an independent entity. eBay with 149 million active buyers, more than 700 million live listings and an installed mobile base of 200 million apps, already have a ready base to deal with the competing online retailers. The analysts, however, will be expecting the company to maintain growth in the revenue stream, even without its payments business.