EBay and Paypal are going to split into two independent publicly traded companies. This move is the result of the strategic review conducted by the company and its board of directors for growth strategies and structure and it will help both business to grow faster in their markets.
“eBay and PayPal are two great businesses with leading global positions in commerce and payments,” said eBay Inc. President and CEO John Donahoe. “For more than a decade eBay and PayPal have mutually benefited from being part of one company, creating substantial shareholder value.”
The split is expected to be complete by the second half of 2015. As a part of the deal, both companies will get new CEO. Devin Wenig, president of eBay Marketplaces, will become the new CEO of eBay. President of the American Express Enterprise Growth Group, Dan Schulman will become the new CEO of PayPal.
“eBay and PayPal will be sharper and stronger, and more focused and competitive as leading, standalone companies in their respective markets,” Donahoe continued. “As independent companies, eBay and PayPal will enjoy added flexibility to pursue new market and partnership opportunities. And we are confident following a thorough assessment of the relationships between eBay and PayPal that operating agreements can maintain synergies going forward. Our board and management team believe that putting eBay and PayPal on independent paths in 2015 is best for each business and will create additional value for our shareholders.”
This split plan was backed by investor Carl Icahn who began suggesting the separation in January. Later in March, he also suggested to sell of 20 percent of Paypal via public offering.
EBay acquired PayPal for $1.5 billion back in 2002. This deal was expected to boost the PayPal transaction by driving auction traffic to PayPal payments. But it was not performed as expected. Ebay and its board members got the separation idea back in 2008 but at that time it represented around half of PayPal’s payments volume. So, that was not a good idea. As of now, ebay owns less than one third of paypal’s total payment and this is expected to be less than 15% in coming days.
eBay began as a simple auction website for used goods and now became a full-fledged marketplace. It claims to have 149 million active buyers and generated $9.9 billion revenue over the last 12 months. eBay is also working to build an enterprise platform to manage brands. But it is facing tough competition in this segment from Amazon. In India, Flipkart and Snapdeal like home grown retailers also giving eBay tough competiton in this segment. After the separation, it will focus on becoming better online market place for brands to sell brand new items.
PayPal is the fastest growing segment of Ebay. It has grown from a payment company to your mobile wallet. It makes money by charging fee from transactions. By the end of 2013, it has 143 million active users. PayPal’s revenue is growing at the rate of 19 percent per year which is twice as quickly as eBay’s. Paypal is now available in 204 countries and is expected to process one billion mobile payments this year. As per the recent research reports, mobile payment is expected to grow from $1 billion in 2013 to $58.4 billion by 2017. So, we can say that PayPal’s future is better. But it will face tough competition from Apple’s mobile payment system, Apple Pay which is expected to launch next month.
