After weeks of speculation, eBay and PayPal have publicly declared that they will be separating. CEO John Donahoe had apparently been against the split, yet it seems that he and eBay’s Board of Directors did a complete 180 in only a few short weeks. The separation has been announced to occur in the latter half of 2015, and will see two new publicly traded companies emerge. These companies will find themselves each with a new CEO, as John Donahoe will not be continuing as CEO of eBay after the split. The split is a strategic maneuver in the idea of allowing both companies to expand and grow faster in their respective markets. Furthermore, since the companies are fundamentally different, this separation will not hinder either moving forward, especially since both companies plan on maintaining a close synergy in further dealings.
Some questions arise for both companies moving forward. A few of these include: Will separation make the two companies more competitive? Will separation be possible without distracting innovation? And, will separation create sustainable value for shareholders over time? With many of these questions, only time will prove an accurate judge, yet the eBay Board of Directors already seem to have some ideas on how the split will be very beneficial for both parties. They believe that eBay served as a wonderful platform for PayPal, but seeing how rapidly PayPal has grown and how useful it could be in other markets and areas has lead the board to recognize that eBay now only serves to hold PayPal back. The reciprocal is also true however, and eBay will have more freedom in the way they conduct their own online transactions in the future.
To truly understand the magnitude of this split, it is important to understand just how much revenue and business these companies are generating on a yearly basis. Over the past twelve months, revenue increased approximately 10% to $9.9 billion for the two companies as a whole, with eBay Marketplaces accounting for $8.7 billion. EBay is one of the worlds top 30 Global brands and has more than 700 million live listings at any given time. “Ebay has been a leading innovator in the world of commerce for almost 20 years; it’s an incredibly special business,” said Donahoe when discussing the acclimatization period that is bound to happen after the separation. He goes on to say that the CEO who will be taking over eBay, Devin Wenig, will, “make a fantastic CEO”. On the other hand, PayPal is a rapidly growing global leader in digital payments and online banking and the most trusted digital wallet, with over 152 million registered accounts. PayPal facilitates one in every six dollars spent online today and clocked in over $203 billion in payments in the last year. It is also branching out and becoming a leader in mobile payments (a main factor in the decision to split) with acquisitions such as OneTouch and Braintree. They processed $27 billion in mobile transactions in 2013, which is quite an astounding figure. It is evident both companies have generated massive revenues as a single entity and it is worth keeping on eye out on how much they will flourish on their own. Moreover, the common user of eBay and the services of PayPal should not be worried that this split will affect their accounts and account security in any way since eBay assures that transactions will run as smoothly as they do now. In essence, the separation of eBay and PayPal is nothing more than a strategic move in order to expand at an even greater rate in the global market, and it will not be affecting the online banking that eBay provides. As Donahoe states, “Tremendous opportunities exist for each business.”
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