EBay said that in today’s climate of fast-moving innovation in e-commerce and new competition in the online payments space, it no longer believes it’s an advantage to have the two businesses tethered together.
“EBay and PayPal will be sharper and stronger, and more focused and competitive as leading, stand-alone companies in their respective markets,” chief executive John Donahoe said in a statement. “As independent companies, eBay and PayPal will enjoy added flexibility to pursue new market and partnership opportunities.”
The spinoff, set to occur late next year, will create two separate, publicly traded companies.
Tuesday’s announcement is something of a U-turn for eBay: When activist investor Carl Icahn pushed months ago for a spinoff of PayPal, eBay opposed the effort. In January, Donahoe told investors on a conference call: “Based on what we see today, we continue to believe that the company, our customers and our shareholders are best served by keeping PayPal and eBay together.”
The split comes as the online payments world is being shaken up by a host of new entrants, most notably Apple, which announced its new Apple Pay program in September. Apple has partnered with major retailers, such as Walgreens, McDonald’s and Staples, on the program that allows iPhone users to make purchases with their mobile devices, which will be linked to a consumer’s credit card.
Other companies, such as Alipay, the digital payment affiliate of Chinese e-commerce giant Alibaba, are also competitors with PayPal.
Sanjay Sakhrani, an analyst with Keefe, Bruyette & Woods, said PayPal has a strong foothold in digital payments that could allow it to thrive even if Apple’s system might outdo it on convenience. “What PayPal has to do is determine which direction they want to go and how they want to differentiate themselves,” Sakhrani said.
PayPal will have to make decisions about where to invest its resources at a time when mobile payment businesses are still in their infancy. “Compared to the potential and expectation, the traction is low [for mobile payments] because it has been unclear that there’s any extra benefits to the consumers,” said Rajesh Kandaswamy, an analyst at technology research firm Gartner.
The eBay-PayPal split will be led by Donohoe and Bob Swan, the company’s chief financial officer. After its completion, Devin Wenig will take the helm of the new eBay company. Wenig currently serves as the president of eBay Marketplaces.
The new PayPal company will be led by Dan Schulman, an executive who has served in leadership roles at American Express, AT&T and Priceline. Schulman will join the company as president of PayPal immediately and will assume the title of chief executive after the split.
EBay’s stock rose about 8 percent on the news, to $57 per share, by late afternoon Tuesday.
PayPal has a large share of the digital payments business, with 152 million active accounts. It facilitated $203 billion in payments over the last 12 months, a 26 percent increase from 2013.
When eBay purchased PayPal more than a decade ago for $1.5 billion, the merger was widely considered a natural fit for two companies whose businesses were so interdependent. At the time, eBay was offering a competing service, BillPoint, but found that a large share of its shoppers preferred to use PayPal instead.
Now, more than a decade later, “we’re at that point in time in the investment cycle where decisions had to be made about whether or not they were working,” Sakhrani said. Ultimately, eBay leaders decided the best opportunity for growth was to unwind the complementary businesses, a move they hope will allow each to achieve a finer strategic focus.
