PayPal is the faster, safer way to send money, make an online payment, receive money or set up a merchant account. On the other hand, eBay is one of the reliable online market places that provides consumer-to-consumer sales services. These two companies teamed up to do something big, but now PayPal is splitting with eBay.
PayPal emerged as an early leader in the online payment space in the late 1990s by solving the nascent problem of fast, secure transactions on the web. More recently it — well, technically eBay—acquired Braintree, giving it a sizable foothold in the fast-growing world of mobile and in-app payments. And it has consistently been the most widely used service among consumers in the still-young market for digital wallets. A study found that PayPal was the brand consumers preferred, with six times the usage of the second-place service, Google Wallet.
But PayPal’s stellar growth wasn’t reflected in eBay’s stock price, which has vastly underperformed its peers. That meant PayPal had fewer resources with which to compete. Activist investor Carl Icahn advised to break up the relationship, highlighting that there was tremendous market value in PayPal that couldn’t be realized while it was inside eBay. But the relationship between PayPal and eBay still lasted. And now it seems that Icahn planted a seed which, along with recent events, finally prompted eBay’s board to approve the split.
Now PayPal has decided to come out from under the eBay umbrella to form its own, publicly-traded company. The move follows a strategic review conducted by eBay, Inc. and its Board of Directors, and is intended to help both businesses grow faster in their respective markets.
John Donahoe, eBay’s (soon-to-be-replaced) president and CEO, said in a statement, “For more than a decade, eBay and PayPal have mutually benefited from being part of one company, creating substantial shareholder value. However, a thorough strategic review with our board shows that keeping eBay and PayPal together beyond 2015 clearly becomes less advantageous to each business strategically and competitively.”
So where does this all leave eBay? Not in a great place. PayPal was the biggest driver of revenue growth at the company and a key part of making the transition from web to mobile. But now, eBay will have to battle Goliaths like Amazon and Alibaba on the strength of its e-commerce alone. The consolation prize for employees is that anyone holding eBay stock is likely to do well in the short term, as the impending PayPal spinoff will likely drive a significant bump in its price until the breakup is complete.