The idea of eBay Inc (NASDAQ:EBAY) spinning off its main payment gateway, Paypal, could have far reaching implications that would split the world’s biggest online retailer’s revenue almost by half.
According to an article by The Information, the spinoff could be realized by the end of next year. This information was first released by eBay’s activist shareholder, Carl Icahn, through his energized campaign for payment unit’s spinoff. However, for financial analysts, the eventual effect of this action could be colossal, and might end up stifling eBay’s growth.
The Saturday Night Live (SNL) Financial analyst Seth Shafer shares the same sentiments.
“Spinning off Paypal would almost split eBay in half, which illustrates just how much the online retailer depends on nonretail sources of income,” Shafer said.
Immediately after that information was released, eBay Inc (NASDAQ:EBAY) had its shares rise to $55.89, which translates to 4.7%. This report was released at the close in New York and it came after Icahn kicked off his spinoff campaign.
At the moment, the search for an independent Paypal director is underway after David Marcus, left for Facebook Inc. The new director is expected to be very instrumental in the realization of spinoff.
eBay Inc (NASDAQ:EBAY) CEO John Donahoe isn’t for the idea though. The CEO has categorically stated that both companies form integral parts of each other, and a possible separation wouldn’t make sense.
“The board will continue to assess all alternatives to create that long-term value and to enhance the growth and competitive positions of both eBay and PayPal. This position has not changed,” eBay Inc. spokesperson Amanda Miller said recently.
Currently, Paypal has more than 150 million users and has been registering steady growth more than any other eBay Inc (NASDAQ:EBAY) segments. Many of eBay shoppers use Paypal as their trusted online payment platform, which makes it an invaluable part of eBay.
Another reality that creeps in is that there are millions of Paypal users who don’t use the service through eBay. These users access the service directly through Paypal’s official website or other online platforms. That means a spinoff will see such transactions recorded independently under Paypal.
This article has been written by Victor Ochieng.