According to a report in the Wall Street Journal, EBay is going to spin off PayPal.
EBay Inc. said it plans to spin off its PayPal electronic-payments business into a separate publicly traded company next year, acceding to the wishes of activist investor Carl Icahn who had pushed for the company to split.
This news comes on the heels of a new mobile payment service from Apple and pressure from investor Carl Icahn to increase shareholder value by splitting up the company. In response to the news EBay went up seven percent. When it becomes a separate publically traded stock should we invest in PayPal?
EBay has been a publically traded company since 1998. From $1.60 a share it grew to nearly $60 a share by early 2004 and then fell back to $12 a share after the market crash. Subsequently EBay has returned to the fifty to sixty dollar a share range. This graph from Google Finance shows the NASDAQ:EBAY picture.
Mr. Icahn and others want to unlock more of the value in Ebay and have pushed to spin off PayPal.
PayPal is an international e-commerce business. It allows payments and money transfers through the Internet. It is subject to the US economic sanction list, and subject to other rules and interventions required by US laws or government. The company is an acquirer, performing payment processing for online vendors, auction sites and other commercial users. PayPal charges a fee for these services, the fee being dependent upon what currency and payments are involved. PayPal was founded in 1998 and was the first dot com IPO after the 9 11 attacks. It was acquired for $1.5 Billion by EBay in 2002. Although PayPal is the payment method of choice for those using EBay its customer base is not limited to its parent company.
Invest in PayPal
The news that EBay and PayPal are to split heartened EBay investors and drove the stock price up. It also makes us think of whether it will eventually be better to invest in PayPal or EBay once the split is accomplished in mid-2015.
After spending much of this year explaining why its two businesses are best left together, eBay’s board of directors and CEO did a complete about-face Tuesday morning, announcing a plan under which its PayPal and eBay marketplace businesses will be split into separately traded public companies by the middle of next year. And CEO John Donahoe will step down as CEO of eBay once the split takes effect in 2015.
A reasonable take on why to invest in PayPal is that EBay is one business and PayPal can deal with many. EBay with its business model may rise or fall. PayPal can service any and all online businesses with its payment system. This reminds us of the old saying from the days of the California gold rush, when everyone is digging for gold the best money is to be made selling picks and shovels. Being the go to company for online payments is a enviable situation. Then, of course, PayPal needs to worry about the new Apple online payment system.