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eBay and PayPal to separate into two companies

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eBay and PayPal are set to be split into two separately trading companies from next year, eBay Inc said today.

eBay says the change in the businesses, which has long been sought by activist investor Carl Icahn, will allow each of the two businesses to make the most of their own growth opportunities. Both trade in the UK, where their markets are growing fast. For both UK businesses, mobile is a fast-growing sector.

Analysts believe the move has been cemented by the threat to PayPal from start up payments services such as Stripe and Square, not to mention the unsettling news that Apple has entered the payments space. Its 800million iTunes account holders dwarfs PayPal’s customer base of some 190million.

The move is also likely to see PayPal – which should become much more agile having its own board and being free to pursue its own agenda – concentrate even more on the mobile payments space.”We would expect to see an independent PayPal put even more emphasis on mobile payments where it has made good progress but it needs to up the ante and be more nimble, particularly as Apple has big ambitions to be a dominant force in m-payments,” says Eden Zoller, Principal Analyst, Consumer, at Ovum.

eBay and PayPal have been more restrained in their comments. “eBay and PayPal are two great businesses with leading global positions in commerce and payments,” said eBay Inc president and chief executive John Donahoe, who will lead the company through the separation together with eBay Inc’s chief financial officer Bob Swan. “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.”

The eBay board concluded that the benefit of existing relationships would decline over time but could be written into arm’s length operating agreements. Donhoe said that a split would give each of the two increased flexibility to look for new market and partnership opportunities.

The new eBay company will be led by Devin Wenig, currently president of eBay Marketplaces, while PayPal will be led by Dan Schulman, now appointed president of PayPal and chief executive designate of the separated company.

eBay Marketplaces and Enterprise businesses turned over $9.9bn in the last year, of which eBay Marketplaces accounted for about $8.7bn, while PayPal turned over $7.2bn, 19% more than at the same time in the previous year.

Donahoe added: “Together, eBay and PayPal have delivered substantial value creation for our shareholders. We believe eBay and PayPal will continue to do so as separate, independent companies.”

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