Ebay shares soar after Paypal spinoff announcement

An amicable separation

Stock markets universally applauded Ebay's decision to spin off popular online payment processing arm, Paypal, some time next year.

They drove the share prices of the online auction site up by more than 7.5%; stocks fell slightly overnight but are still close to their 52-week high.

A number of changes will happen in what amounts to a post-demerger of two almost-equals. Current CEO (and president) John Donahoe and his CFO, Bob Swan will oversee the separation and sit on both boards of the new Ebay and new PayPal.

The current Ebay Marketplaces, Devin Wenig, will become the new CEO of Ebay while American Express executive Dan Schulman will become the President and CEO of PayPal. Schulman was formerly the Group President of Enterprise growth at AMEX where he oversaw the company's global strategy to expand mobile and alternative online payment services.

Three conclusions

The decision to split Ebay into two separate entities hinges on three conclusions: opportunities have arose following a changing competitive landscape - Ebay and PayPal consider the benefits of their existing relationships as "declining" and this is, according to Ebay's board, the best path for delivering sustainable shareholder value.

Just like VMWare and EMC, spinning off business units can sometimes be very lucrative and there's no reason why this shouldn't be the case for Ebay and Paypal.

Ebay without Paypal generated $9.9 billion over the last public year and has 149 million active buyers. PayPal has 152 million active registered users with revenue of $7.2 billion over the last year. It is the growth rate however that will get investors interested; PayPal annual revenue growth is almost double that of Ebay.

Desire Athow
Managing Editor, TechRadar Pro

Désiré has been musing and writing about technology during a career spanning four decades. He dabbled in website builders and web hosting when DHTML and frames were in vogue and started narrating about the impact of technology on society just before the start of the Y2K hysteria at the turn of the last millennium.