EBay to Spin Off PayPal

EBay to Spin Off PayPal(dealbook.nytimes.com)

230 points by murtza 11 years ago | 94 comments

CrazyCatDog 11 years ago |

When the going gets tough, firms call in consultants. When Bain or McKinsey arrive, they tell you to make a change. Is your firm centralized? Decentralize it! Is your firm decentralized? Centralize it. Donahoe's "master fix" and subsequent exit should give pause to industry thinking of hiring consultants to run their companies in the long-run; for as the saying goes: the apple doesn't fall far from the tree.

ChuckMcM 11 years ago | |

Hilarious and on point, but to their credit consultants look at what you are currently doing which isn't working, and suggest you do the other thing on the theory that worst case that won't work either but at least you will have tried something new.

I generally think that it is a symptom that the management isn't able to manage the business. Not everyone has the skill set to mix a tech and commerce company into a living / breathing entity.

mathattack 11 years ago | | |

The "higher brand" consultancies also live by their stamp of approval.

A CEO who wants to do a risky strategy will hire the biggest brand name possible to provide cover. "Nobody got fired for hiring McKinsey for advice" is similar to "Nobody got fired for buying IBM hardware". And in this case, the CEO can say, "Well, I hired the best to help me think it up" when it goes wrong.

x0x0 11 years ago | | |

Or perhaps for some reason management needs an external blame sink for doing something they wanted to do...

danhak 11 years ago | |

This move has nothing to do with consultants and everything to do with activist shareholder Carl Icahn.

foobarqux 11 years ago | |

In this case it is more likely that the consultants were brought in to "independently" provide justification for something that had already been decided.

trhway 11 years ago | |

This is what they repeatedly did to collective farms mid 20th century in USSR. Nothing helped. One can only wonder why :)

mathattack 11 years ago | |

Wasn't the prior CEO (Meg Whitman) also Bain?

In his defense, he was there for almost 10 years, no?

WoodenChair 11 years ago | | |

Yes the GP comment is totally off base as far as its attacking Donahoe is concerned (if that was even the intention). He's a very long time eBay exec, and Meg Whitman was nearly with eBay from the beginning. From all outward appearances Donahoe and his colleagues only made this decision after a lot of careful consideration.

btown 11 years ago |

Is anyone else worried about the long term stability of Braintree under such an aggressive board environment? I was always concerned about conflicts of interest with PayPal acquiring Braintree - two competing and incompatible ways to pay with a credit card. As much as I admire Braintree engineering, and I would normally trust a board to believe in the Braintree brand of reliability, it does no good if a single unpredictable actor, namely Icahn, could strongarm the parent company into underfunding or cannibalizing Braintree. Am I just being paranoid?

lbarrow 11 years ago | |

I'm an engineer at Braintree.

Speaking only for myself, I don't see a conflict of interest between us and PayPal. PayPal has embraced our APIs and approach to support as the future of how merchants will integrate with PayPal, and we've been able to leverage PayPal's consumer brand to build better products for our merchants.

I was initially very, very skeptical of our acquisition, but I have to admit it's turned out well. I don't think there is any risk of them underfunding or cannibalizing us.

rkalla 11 years ago | | |

For what it's worth, PayPal is embracing the shit out of BT acquisition - really see that as the north star for our merchant integration story. Everyone knows they know what they are doing and only want to help, they don't want to hinder/hobble/mess with it.

jcampbell1 11 years ago | |

I see the opposite problem on the horizon. With the Braintree acquisition, Paypal is a lot less likely to integrate with Stripe. Braintree is going to be a worse version of Stripe, but we will use it because it will give us PayPal out of the box. It is a good time to work at Braintree.

matthewarkin 11 years ago | | |

As someone who has worked a ton with the Stripe API, whenever I use Braintree's (vZero) API it looks soo much like they are trying to copy Stripe, but fail so so hard. Want to get the subscriptions for a customer? Sure, first get all the cards the customer has, then iterate through that list of cards and combine all the subscriptions for each card. Oh, is that a paypal customer, well credit cards and paypal accounts are separate and each can contain subscriptions.

pratyushag 11 years ago |

Great decision, allowing PayPal to grow beyond the virtual ceiling placed by being governed by a marketplace company which rightly has its own agenda before PayPal's.

Shivetya 11 years ago | |

As long as the split does not disrupt the current relationship for buyers and sellers using Ebay. Right now the process is quite simple and there had been recent efforts to link the two sites even more, as in not needing to ever log into Paypal to complete ebay purchases.

hopefully that integration won't suffer.

pratyushag 11 years ago | | |

I don't see why it would... ebay would still hold a significant percentage of paypal and influence such decision making. The main benefit will come from large competitors choosing Paypal as it becomes a less biased payment service and not one that directly profits a competitor. Essentially, Ebay will now have to pay closer to market-rate for processing.

sk55 11 years ago | | |

integration has been live on my account for several months.

bluedevil2k 11 years ago |

Spinning off PayPal really hurts the long-term growth potential of EBay. They haven't grown much at all over the past few years, once you take out the PayPal revenue. That will really hurt the stock price. Meanwhile, I would expect PayPal's stock price to grow as it's potential for growth is pretty large. Will be very interesting to see how they split the existing EBay shares for shareholder and at what price.

foobarqux 11 years ago | |

> Spinning off PayPal really hurts the long-term growth potential of EBay. They haven't grown much at all over the past few years, once you take out the PayPal revenue.

But, as a current shareholder, you will still own PayPal and Ebay shares. The question is whether they are better together or better apart. There isn't any obvious synergy between the two anymore.

> Will be very interesting to see how they split the existing EBay shares for shareholder and at what price.

No, there is nothing interesting about that. Each shareholder get X shares of Ebay, Y shares of Paypal and Z dollars of cash. The price of the shares is set by the market. The values of X and Y are pretty much arbitrary.

adventured 11 years ago | |

eBay has most of the profit in the business. PayPal has sales growth, but is nowhere near as profitable as the eBay auction platform. There's no doubt the market wants access to PayPal's growth, but eBay is the profit machine in that relationship. eBay's platform margins are extreme.

PayPal will have to become five times larger to equal the profit that eBay spins off. Perhaps they can pull that off, but it's going to take a decade or longer.

fidotron 11 years ago |

The recent Alibaba ipo demonstrates this is a stupid idea and that eBay has been chronically mismanaged for years. That it has effectively squandered such a massive lead and headstart is incredible.

adventured 11 years ago | |

Alibaba spun off Alipay. How does the Alibaba IPO demonstrate spinning off PayPal is a stupid idea exactly?

rebelidealist 11 years ago | | |

Alibaba spun off Alipay because Jack Ma wanted to control Alipay instead of the Alibaba majority stakeholder such as Yahoo and Softbank. It was an uncontested power move by Ma.

metaphorm 11 years ago |

Icahn is only interested in Icahn. I can't really see this as positive for anyone just because Icahn has a track record of pressuring businesses into destroying their value creating engines in order to enrich his own coffers. He's a pillager, not a builder. Why does anyone tolerate doing business with him anymore?

kolbe 11 years ago | |

Firstly, this is not an instance of a company being pillaged by an activist investor. Icahn is not assuming control of the company, he's trying to make them change direction.

Secondly, Icahn has been completely right about eBay. Andreessen functionally stole billions from eBay via a deal with one of the most egregious conflicts of interest we've seen in all of corporate America. Which, fine, it was a fuckup. Sometimes companies fuck up. But then, eBay keeps the same board of directors with the same crooks running the show. eBay needs an activist investor or else these are the guys who are going to pillage the company (even further). Not Icahn.

x0x0 11 years ago | | |

To be fair, I think Andreessen only got a couple hundred million (3% on an $8.5B acquisition [1]). But while pmarca says he recused himself, the whole thing reeks.

Though don't forget what is actually the far far bigger failure. When that idiot Meg Whitman acquired skype in 2005, she acquired skype but not the underlying tech (Joltid), then fucked the founders on an earnout. So there was tons of bad blood, and they were declining to relicense their p2p tech to skype. You can read all about it [2] and elsewhere. That, plus some other stupid stuff, made ebay give the founders 30% of the company back for $160m. I don't think Andreessen was on the board for the initial acquisition, but what idiocy.

It's hard to believe a reasonable technical person was involved in the initial acquisition. Where the hell was the board? The point is, it's hard to say ebay has had competent executive leadership or a board for a while.

[1] http://www.bloomberg.com/news/2014-03-03/ebay-andreessen-ref...

[2] http://mashable.com/2009/11/06/skype-lawsuit-settled/

metaphorm 11 years ago | | |

I wasn't commenting about the board of Ebay or Andreesen. they may well be pillaging assholes in their own right. that doesn't mean that Icahn isn't also a pillager. He certainly has the track record of one.

xnull 11 years ago | |

Everyone keep your eyes peeled for same thing re Value Act Capital and Microsoft.

williwu 11 years ago |

This article come to mind. Would Google be interested in buying a stake in Paypal now?

http://www.cnet.com/news/google-to-buy-slice-of-ebay-unlikel...

ghobs91 11 years ago |

I think one of the major sources of eBay's troubles is their decision to slowly abandon their P2P focus, in favor of the "shopping mall of the internet" model that Amazon uses. Rather than pursuing this model and doing it better than the competition, they chose to ape them, and badly.

Like CrazyCatDog said, eBay is the textbook example of what happens when a tech company is run by consultants who don't understand the users.

CamperBob2 11 years ago | |

A contrarian view: there is some room to attack Amazon, primarily in the UX department. I wouldn't rule that out as a strategy for growth, but is eBay the right company to execute it? That's where it gets murky. They have a lot of the same usability flaws.

toomuchtodo 11 years ago | | |

> A contrarian view: there is some room to attack Amazon, primarily in the UX department.

Good luck with that. I've spent over $50K at Amazon over the last decade according to the data I dumped out of my orders. I'm a prime member. Amazon's site isn't perfect, but between the reviews, 2-day free shipping, 1 day at ~$5 extra, and product selection rivaled only by Walmart, I wouldn't look at Ebay unless it was something exotic (5 ton military truck for example).

"Bid" on something? No. Use Ebay's UX compared to Amazon's? Again, no thank you. Wait 5-7 days (at least) for something? Good luck Ebay!

DanBC 11 years ago | | |

I love to think that a web shop with decent search would beat Amazon.

However, even though I really freaking hate some aspects of the Amazon website I am a repeat customer. I don't have much money but the small amount of disposable income I do have goes to Amazon.

Competitors would need to have similar customer protection and customer service; and at least similar pricez or justification for higher prices.

ghobs91 11 years ago | | |

Not only in the UX department, but also in their flawed and not very useful personalization system. "We noticed you bought an iPad, here are some more iPads" is not helpful.

hemancuso 11 years ago |

This articles suggests only 20% of PayPal will be sold, although I doubt that number is anywhere near final. It's just like EMC spinning off VMware. EMC held on to 80% of VMware [and still does?]. It lets them capitalize much more effectively on the faster growing subsidiary. Even today VMware trades at double the PE ratio that EMC does.

lbarrow 11 years ago | |

The 20% figure quoted is describing an earlier deal that eBay considered and rejected.

bhangi 11 years ago |

The one question no one seems to be asking is how much of PayPal's revenue is due to transactions on eBay. I suspect that it is the majority. If that's the case, then with the spinoff, it would be in eBay's interest to make all other types of payments equally attractive on its site -- not so good for PayPal, I'd think.

slykat 11 years ago | |

Last year Ebay's marketplace accounted for 30% of Paypal's revenue. Ebay mentioned that this number is declining and is forecast to hit 15% in the future. So significant but declining.

"That’s no surprise since about 30 percent of PayPal’s business is still on eBay, although that is down from 50 percent only a few years ago. Donahoe said eBay projected it would get to 15 percent quickly." http://recode.net/2014/09/30/ebay-to-spin-off-paypal-with-ne...

wheaties 11 years ago |

Wait, payment processing is seeing a lot more competition and now they decide to split? I don't know if this is such a "value creation" move.

CamperBob2 11 years ago | |

I think the argument is that as the landscape gets more competitive, eBay can't afford to tie themselves so intimately to a single payment provider.

That is why eBay's stock lurched upwards as soon as the news was announced. To someone looking to invest in an online marketplace, eBay is more important than PayPal by itself.

dosh 11 years ago |

Once this goes live, PayPal will sooner or later face stiff competition beyond its current stage under the umbrella of eBay, competing against Chinese players like those of alipay and tenpay which already have users in the hundreds of millions. These players are agressively looking into the markets outside of mainland China.

The landscape won't change in a few years, but in a decade, may look completely different.

Shinkei 11 years ago | |

I agree that they are companies with promise, and certainly will be strong in their domestic markets... but I remain skeptical of their success in the West. I personally would not directly support Chinese businesses if I have an equivalent Western business that I can support, not simply because of xenophobia or some nationalistic nonsense, but because what China does as a Government is reprehensible. For all its faults, America is still a shining emblem of Democracy when compared to other powers such as Russia and China.

adventured 11 years ago | | |

Not only that, but China doesn't allow an even playing field in any regard what-so-ever in their domestic economy.

Foreign investors still can't own more than the majority share in a Chinese company.

China is anti-West when it comes to supporting their domestic companies. They block out major competitors, such as Google or Facebook, and they make life very difficult for anyone that attempts to compete with their domestic companies.

The crap Alibaba pulled in stealing tens of billions in wealth from Yahoo by spinning off Alipay without proper compensation and forcing Yahoo to sell half its stake in Alibaba is par for the course in China.

adventured 11 years ago | |

PayPal will probably be eaten by Visa (if it can pass anti-trust criticism, not easy).

Visa has a $134 billion market cap and is the payments juggernaut globally. I'd bet on them at least attempting to acquire PayPal.

To put Visa in perspective, their profit for 2013 was roughly 60% greater than Alibaba's.

1337biz 11 years ago | |

These would still have a massive trust issue in most parts of the "Western World". Certainly doable under the umbrella of buying an established western (banking) brand but Asian brands will have a hard time communicating trust, reliability and security.

modeless 11 years ago |

I wonder if this will affect PayPal's recent enthusiasm for Bitcoin one way or the other.

ghshephard 11 years ago |

The first thing that comes to mind is that the clock has just started ticking for PayPal to become accepted all over the web in places that it may not have been as welcome. For example, I'm sure Amazon will add PayPal within 90 days of Paypal going public (if not sooner).

davidgerard 11 years ago |

eBay's acquisitions have rarely made sense, PayPal being the only one I can think of that had synergy. Does anyone understand why they bought Magento, for instance?

calcsam 11 years ago |

Next target: Yahoo.

danesparza 11 years ago |

I'm amazed that this jackass who ran TWA into the ground still has so much staying power. http://www.businessinsider.com/marc-andreessen-carl-icahn-ki...

jabberwock 11 years ago | |

I totally agree with your assessment of Icahn. Andreesen's no saint however, he supports government spying and trampling of civil rights for his personal gain.

rattray 11 years ago | |

What, you're only allowed to learn from failure in Silicon Valley?

ceejayoz 11 years ago | | |

TWA wasn't a failure for Icahn. He made hundreds of millions of dollars by selling its assets to pay himself.

psaintla 11 years ago | |

As long as you have massive amounts of money you'll always be relevant.

Rachelgee 11 years ago |

NoOoOoOo!

moony320 11 years ago |

market share is the most important thing. Paypal will hurtle without Ebay. I think this is a wise and significant decision. And hope Paypal could reduce rates or even chance the fees.

wstcha 11 years ago |

market share is the most important thing. Paypal will hurtle without Ebay. I think this is a wise and significant decision. And hope Paypal could reduce rates or even chance the fees.

jessaustin 11 years ago | |

"hurtle" might be kind of an ambiguous verb here. I think you mean that PP will take off, but hurtling usually seems to imply traveling under the influence of inertia and gravity alone.

EDIT: why have two green accounts posted the same non-idiomatic comment in a matter of minutes?

conchy 11 years ago |

Smart move, eBay divests before bitcoin really starts eating PayPal's lunch

DanBC 11 years ago | |

Bitcoin provides zero protection to buyers.

It's delusional to think people would want to buy stuff from ebay without the protections from Paypal or their credit card provider.

Current consumer protection advice is to walk away from any sale that uses things like Western Union or cash transfer - and this is likely to be extended to include Bitcoin as soon as anyone in the general public hears about Bitcoin.

icebraining 11 years ago | | |

Still, a simple escrow system on top of Bitcoin could provide the same guarantees while potentially being cheaper. It's not like Bitcoin prevents such systems from being created - on the contrary, it has mechanisms to support them.

venaoy 11 years ago | | |

And credit cards provides zero protection against identity theft. In fact, they even enable it because you give your full billing info (credit card number, address, etc) when paying an online merchant with a card.

You see, no payment technology is perfect. Credit cards have flaws. Bitcoin has flaws. But Bitcoin is better than credit cards for the average consumer. In the last 10 years:

- I have had to deal with 2 identity theft incidents that caused me major hassles and waste of time. Bitcoin would have prevented this because a Bitcoin transaction authorizes 1 and only 1 payment to a specific address. Bitcoin utilizes cryptography to guarantee that, not blind faith in the merchant not being compromised by hackers...

- on the other hand I have never had the need to issue a credit card chargeback, so this protection of credit cards was, although real, unneeded, useless to me.

lnanek2 11 years ago | | |

PayPal protections are usually considered a disaster for everyone involved. Sellers and companies are constantly getting their accounts frozen, buyers are constantly getting shipped bottles of shampoo instead of camera equipment, priceless violins are being destroyed, etc..