John Donahoe, the CEO of eBay Inc. (EBAY), recently stated that its digital payment arm PayPal will continue to perform as a unit of the company. Note that last month activist investor Carl Icahn had proposed the spinoff of PayPal with a different management team, surmising that it would boost the progress of both the companies. But eBay management rejected the proposal as it believes that PayPal and eBay will benefit more by working together.
Management believes that PayPal is the company’s best-performing service and its fastest-growing unit. But it also owes a lot of this to the online marketplace. eBay is largely responsible for the success of the online payment service and provides a strong financial base for PayPal’s growth.
Moreover, close to one-third of PayPal’s new accounts and half of its new mobile accounts come from the online marketplace. Therefore, eBay and PayPal can collectively generate the best value for shareholders.
Carl Icahn owns 0.82% of eBay. Nonetheless the giant online marketplace turned down his proposal triggering a probable conflict with the activist investor.
PayPal was acquired by eBay in 2002 for $1.5 billion. Since then, it has become the giant marketplace’s engine for growth and the actual reason for investors to hold shares of eBay. As more and more customers prefer online shopping nowadays, the use of this online payment service has increased.
Thus, PayPal accounts for a large percentage of eBay’s total revenue. Additionally, it along with fulfillment services, enables eBay to provide a complete solution to retailers, whether brick-and-mortar or online.
Therefore, as eBay contests with Amazon.com Inc. (AMZN), this unit drives eBay's share value.
Currently, eBay holds a Zacks Rank #4 (Sell).