EBay’s Reserve Not Met- PayPal Staying Put

Ever since eBay (EBAY) unloaded its stake in Skype last year, there has been fierce speculation that they would do the same with PayPal, the popular online transaction company. Here is a piece in the New York Times from earlier this year making the case that a spinoff is needed in order for PayPal to reach its full potential. Others believe that eBay is simply undervalued on a ‘sum of the parts’ basis. The response has always been the same from eBay’s CEO John Donahoe – maybe, when the time is right, but not now.

In case you don’t remember, eBay acquired PayPal in 2002 for roughly $1.5 billion and since then has become eBay’s main growth driver and a significant piece of its revenues. The payment business has become even more important as eBay attempts to ‘revamp’ its marketplace business which many believe is in a more ‘mature’ (ie slower growth) stage. In fact, just last year PayPal accounted for 32% of eBay’s $8.7b of revenue. Despite those facts, PayPal still controls less than 10% of the estimated $600 billion online transaction market and as a result, many feel its value is not fully reflected in eBay’s shares.

Alas, the spinoff hopes were crushed again this week by PayPal President Scott Thompson, who said “there are absolutely no plans [for a spinoff]…and we are happy to be a part of eBay…” He even mentioned something about ‘synergies’.

Oh well. Maybe, one day, this will be of more interest to us here, but for now it is just another rumor put to rest.

Disclosure: Author holds no position in any stock mentioned