Digital payments giant PayPal (PYPLV) is set to begin trading as its own entity on Monday, July 20.
The long-anticipated split from its parent eBay (EBAY) gives investors the ability to value each business discretely, something which should be great for PYPLV stock owners but rather unpleasant for post-split EBAY shareholders.
Listen EBAY, you’ve had your run, and it was great. In the past five years, EBAY stock tripled … as PayPal fueled most of your growth.
EBAY stock more than tripled in the past five years, and is up 26% in the last year alone. Those gains were enough to trump the S&P 500 by 90 percentage points and 20 percentage points, respectively. Kudos!
Now, I’d prepare for the inevitable slide in EBAY stock that will commence next week. But even before the split goes into effect, PayPal stock is having its way with its soon-to-be former parent company:
PayPal stock replaces EBAY in S&P 100
PYPLV stock is set to replace its corporate parent eBay in the S&P 100 Index on Monday, when shares begin trading. PayPal stock will also immediately join the S&P 500 Index, booting the offshore drilling company Noble Corp (NE) from its ranks.
NE stock has plunged 44% in the last year alone as lower oil prices punished contract drillers like Noble, Transocean (RIG), and Seadrill (SDRL).
To be fair, EBAY stock isn’t a total dud. After all, it reports earnings tomorrow morning, and there’s a good chance PayPal will save the day and make EBAY stock look far more appealing than it actually is. That’s precisely what happened last quarter, when PayPal put the auction site on its back and vaulted eBay to beats on both the top and bottom lines.
And if you recall, something else happened last quarter, too:
“For the first time, PayPal revenues exceeded those from eBay’s Marketplace; while PayPal revenue of $2.11 billion was up 14% year-over-year, Marketplace revenue fell by 4% to $2.07 billion.”
I expect we’ll see that scenario again in tomorrow’s earnings report, and continue to see PayPal haul in more revenue than eBay’s Marketplace for many years.
But merely getting replaced by its offspring in the S&P 100 isn’t the only “slap in the face” EBAY stock can expect from PYPLV stock in the coming months. Now its own independent company, PayPal will be allowed to work with other major online retailers — do Amazon.com (AMZN) and Alibaba (BABA) ring a bell?
Methinks partnerships with AMZN or BABA could do wonders for PayPal stock, although I wouldn’t count on those deals being worked out the second PayPal comes into its own.
Moving forward, I must wholeheartedly agree with the prevailing sentiment on Wall Street since the day the spinoff was announced: Sell the standalone EBAY stock — that much is pretty straightforward. And if you’re looking for something to do with that extra scratch, PayPal stock will finally be up for sale!
As of this writing, John Divine was long Jan 2016 $28 RIG call options. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
