eBay Spinning Off PayPal as Its Own Company
You may have forgotten since the purchase was twelve years ago but online auction site eBay actually owns the biggest online purchase service PayPal. Or at least as of next year, they will have owned PayPal. That’s because eBay announced plans to spin-off PayPal as its own company complete with a share flotation to make it public.
The spin-off of PayPal isn’t coming for at least nine month as eBay says that the separation of the two companies won’t come until the second half of 2015. At that point, PayPal would have a public offering of its shares which would mean a quick cash injection into the new company as shares are sold on the stock market.
While it might not make much sense for eBay to spin-off PayPal from eBay’s business perspective as PayPal contributes 41% of eBay’s revenues in total and is expected to keep growing, from an investment sense, it might help eBay. Immediately, the announcement caused 7.5% share price increase. And as eBay will own 80% of PayPal after the public offering if the NYT’s reporting of a likely flotation of 20% of PayPal shares proves accurate, they’ll have some shares that they can sell on the market to quickly drum up cash. That doesn’t include the possibility of dividends from PayPal bringing money in. With an estimated market capitalization of over $30 billion, that could mean that eBay would be waiting to cash in on $24 billion+ in PayPal shares.
As for PayPal itself, it’s believed that spinning it off from eBay will allow the company to pursue its own strategic direction as it faces growing competition in the electronic payments space. Right now, Amazon Payments is PayPal’s biggest competitor. With the recent rollout of the iPhone 6 line and iOS 8, Apple Pay is going to become a big threat since they’re skipping the online space and immediately trying to get into the brick-and-mortar retail space. PayPal is likely going to want to quick find its way into stores to do battle with Apple.
Considering that electronic payments are only going to increase from here, PayPal is probably going to make an attractive investment opportunity. If you’re an investor in eBay, on the other hand, at least you can take comfort in that they won’t immediately go broke without PayPal. Beyond that is up to the market.
Sources: New York Times, Wall Street Journal
Posted on October 1, 2014, in Tech and tagged Business, eBay, PayPal. Bookmark the permalink. Leave a comment.
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