EBay Inc. (EBAY, Financial) is a global technology company that provides online services to people across the world. It facilitates online payments and mobile commerce. It is one of the largest online trading sites in the world.
Recent announcement
EBay has recently announced that it is going to spin off PayPal into a separate and publicly traded company in 2015. Creating two standalone businesses best positions eBay and PayPal to capitalize on their respective growth opportunities in the rapidly changing global commerce and payments landscape and is the best path for creating sustainable shareholder value, the company said.
“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. However, a thorough strategic review with our board shows that keeping eBay and PayPal together beyond 2015 clearly becomes less advantageous to each business strategically and competitively. The industry landscape is changing, and each business faces different competitive opportunities and challenges. (Source: Company's Website)
Pros of this spinoff
“EBay and PayPal will be sharper and stronger and more focused and competitive as leading, standalone companies in their respective markets,” CEO 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.”
Separation will create sharper strategic focus and better position each business to capitalize on those growth opportunities as independent companies. The pace of industry change and innovation in commerce and payments requires maximum flexibility to stay competitive and drive global leadership.
This is the best path for delivering sustainable shareholder value. eBay is a leading global commerce platform that has benefited from PayPal, and PayPal is a strong, rapidly growing global payments leader because it has been part of eBay. But beyond 2015, eBay and PayPal will each benefit more and create greater value from the strategic focus, speed, flexibility and agility that come with being independent publicly traded companies.
Putting the pieces together
A global commerce leader with 149 million active buyers, eBay is one of the world’s top 30 global brands and a top 10 retail global brand.2 Offering consumers worldwide extraordinary value and selection, eBay has more than 700 million live listings at any given time, and approximately 75% of sold items are new. EBay also is a leader in emerging competitive battlegrounds such as mobile and cross-border commerce. EBay has an installed mobile base of 200 million apps, generating $20 billion in mobile volume.
PayPal is a rapidly growing global leader in digital payments and the most trusted digital wallet, with more than 152 million active registered accounts. Accounts grew 15% year-over-year last quarter. Revenue over the last 12 months grew by 19% over the prior year period to approximately $7.2 billion. Total payments volume over the last 12 months increased by 26% to $203 billion, providing merchants and consumers worldwide a faster, safer way to pay and be paid. PayPal is fully localized in 26 currencies, is available in 203 markets worldwide and has relationships with 15,000 financial institutions. Representative of its global reach, PayPal is the No. 1 payments processor for business-to-consumer exports for Chinese merchants.
Every strategic decision comes with risks. Both the companies are potent for long-term investing. PayPal itself is a valuable company and will generate more revenue growth in the near future. This is probably fueled by the very fact that wire transfer service, Western Union (WU, Financial) is losing market share. From this spinoff, PayPal will be able to innovate quickly and will continue to grow at a faster and independent pace.
EBay is a reputed company that continues to reach customers globally. It has extended its reach of merchants, customers and retailers. The company is reaching mobile commerce leadership, which fueled its growth so far. The company generates revenue through classifieds and marketing. “We continued our momentum in the four competitive commerce battlegrounds of mobile, local, global and data,” John Donahoe, eBay’s chief executive, said in a statement.
EBay has the potential to deliver strong financial performance and maintain a competitive position in the market. The company is already spending heavily and expanding in newer markets. The company is doing everything to make the mobile shopping experience a hit with the customers. These days consumers prefer mobile shopping and surfing. EBay is making an effort to capitalize on this. EBay is a company that is always looking for innovation. It is focusing on emerging markets. Global commerce is evolving and this e-commerce giant has surely a long way to go.
