Carl Icahn might be getting the credit, but eBay (EBAY) shedding PayPal was a no-brainer.
Even if it was a long time in coming.
The idea of a PayPal spinoff from eBay has been kicking around for years, or ever since it became embarrassingly obvious that PayPal was growing faster — and would one day overtake — eBay.
While EBAY stock has been off to the races since the financial-crisis bottom, eBay itself has been decelerating for going on a decade now. The novelty of the auction model wore off a looooong time ago.
And as for eBay selling stuff straight up … well, you may have heard of a little company called Amazon (AMZN) that competes in that same business too.
PayPal, on the other hand, has been growing at a healthy clip. Revenue for the last four quarters increased 19% to $7.2 billion.
Meanwhile, PayPal already contributes almost half of eBay’s total revenue, and that percentage is growing. At the same time, PayPal is becoming far less dependent on eBay for its own revenue, and that dependency is shrinking all the time.
So anyone holding EBAY stock needn’t thank the billionaire corporate activist for eBay spinning off PayPal.
They will, however, have to decide what to do with their eBay stake once PayPal is gone.
See, EBAY stock soared on news of the PayPal spinoff, set for 2015, because … well, who wouldn’t want a piece of PayPal? But what happens after the companies go their separate ways isn’t likely to be pretty.
EBAY Stock a Longtime Dud
Take a look at any chart and you’ll see that eBay stock is actually dead money over the past decade — and that’s with the contribution from PayPal. EBAY has been a dud more recently too. Before the PayPal rally, eBay stock was off 4% for the year-to-date, lagging the broader market by 11 percentage points. It has been in negative territory for much of the year, with only Carl Icahn’s attacks getting eBay stock to perk up.
But troubled as eBay is (and will be without crown jewel PayPal), it’s not as if PayPal gets a free ride either.
Everyone is gunning for a piece of digital payments, especially mobile payments. Google (GOOG), Facebook (FB) and Apple (AAPL) with its new Apple Pay service represent formidable competition.
Of course that’s all the more reason for eBay to spin off PayPal. A focused and independent PayPal has a better chance of beating its rivals than does a subsidiary beholden to a bunch of distracted eBay managers.
Whatever the outcome, this is the best news anyone holding eBay stock has heard in some time. The only thing to do in the short term is hold on to your stakes until eBay sets PayPal free.
After that, only one of these stocks looks like it’s worth holding for the long term.
We’re betting you can guess which one it is.
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As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
