For many, PayPal and eBay (News - Alert) have been the kind of things often mentioned in the same breath for quite some time now. It's almost hard to think of eBay without PayPal involved, but some are starting to do that, if on a somewhat limited basis, bringing out new reports of a potential PayPal spinoff. But a new report suggests that, if eBay actually did such a thing, it would represent a huge change for eBay, and would almost be like splitting the company itself in half.
The reports suggest that PayPal (News - Alert) is put into eBay's “Payments” section of its financial reports, much like the “Bill Me Later” service and eBay's recent acquisition of Braintree. What's more, eBay has reportedly structured its finances in such a fashion that there's a clear division between the payments sector and other parts of eBay's operation, like “marketplaces” and “enterprise,” which suggests that, for the most part, PayPal is already running independently of eBay in several ways, and is even treated somewhat separately on eBay's balance sheets anyway.
The idea of a separate PayPal goes back some time; activist investor Carl Icahn pushed the concept forward a few months back, ultimately backing off in April in the face of resistance from eBay CEO John Donahoe. But with the recent moves, it looks like Icahn's position is getting a second look, and the second look is suggesting that there's some value to taking such a stance.
SNL Kagan's Seth Shafer offered a bit of commentary on the affair, saying “Spinning it out doesn't mean that the two companies can't work closely together or contractually sign agreements to basically continue the status quo. It's difficult to see what would necessarily be lost for eBay.” This somewhat mirrors arguments reportedly originally posed by Icahn, who noted that a PayPal spinoff could be valuable as eBay's total valuation actually held back PayPal's own potential valuation. Since PayPal is really more of a financial institution, while eBay is more of a marketplace, the two could separate easily and continue to work together well through contracts and the like. Plus, PayPal could then open the floodgates in terms of businesses that will accept PayPal without worry that said businesses would essentially be handing money over to eBay, a competitor.
But that's not the end of potential benefit for PayPal should the company get spun off; reports suggest that, with eBay no longer a part of the operation, it could have the unexpected effect of making it easier to draw in management talent since it would be seen as more of a financial operation rather than part of an e-commerce release.
There is certainly some value in the idea of a PayPal spinoff. Given that the company's already operating largely independently of eBay anyway, it wouldn't have much of an operational impact, and while it would be a very big step—almost cutting the company in half by some measures—the potential rewards of such a venture could be just as large or maybe even bigger thanks to the new opportunities that such a move might pose.
It's a very big step for eBay no matter how it's considered, but there certainly are some substantial potential rewards here. Only time will tell if this is the route eBay decides to take, but with so much at stake, there may well be a decision one way or another before long.
Edited by Alisen Downey
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