Icahn also took on a 10% stake in Guaranty Financial in early 2008, with plans to force parent company Temple-Inland to spin off the bond insurer. Guaranty Financial declared bankruptcy a year-and-a-half later.
Point being, just because Icahn is a billionaire doesn’t make him right every time. Likewise, he might well be wrong about PayPal.
In fact, he probably is.
Yes, it’s true that the PayPal division is growing much faster than online-auction revenue is for eBay. Last quarter, the payment arm of the company saw a 19% increase in year-over-year revenue, while the auction and online-retailing business has struggled to grow at all, facing formidable opponent Amazon.com (AMZN). Icahn doesn’t see — or perhaps doesn’t want to see — however, that much of PayPal’s growth is the result of the online auction division.
Last quarter, one-third of new PayPal signups were driven by the e-commerce activities at www.ebay.com. Moreover, the company reports that half of the online-auction division’s earnings are being channeled toward PayPal to support its substantial growth rate.
If the two companies are split, eBay won’t be as keen on sending users to a third-party that makes money doing something eBay made a point of bringing in-house a decade ago. And you can be absolutely certain that eBay wouldn’t be writing a check to PayPal every quarter to help it keep growing at its current 19% clip.
So is Carl Icahn truly missing the boat about the symbiotic relationship between PayPal and eBay (and EBAY stock, for that matter), or is he just throwing spaghetti on the wall to see if any of it sticks?
I say it’s the latter.
Remember, Carl Icahn isn’t an investor. He’s an opportunist. He doesn’t care if eBay or PayPal survive past the point he exits his position, and while he might choose to hold both for years to come after any spinoff, he also might choose to sell EBAY stock and the newly created PayPal equities five minutes after all the value is unlocked.
One thing is for sure, though … most small investors won’t know he has shed his eBay or PayPal holdings until after the fact.
Traders looking for firm evidence that Icahn isn’t truly concerned about a company’s longevity (nor is he on the same side of the table as the average investor) only have to look at a comment he made regarding a potential cash distribution he has been hounding Apple for since the middle of last year.
In an interview he gave regarding the Apple matter, Icahn said, “If we lose, we lose, from a financial point of view it might be better for a lot of shareholders if they [Apple] don’t do this.”
If he knows it might not be good for AAPL to let go of so much of its cash, yet he’s pushing for it anyway, it’s possible — even likely — he doesn’t actually think splitting eBay and PayPal is the best outcome for EBAY stock owners either.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.