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Is PayPal The Next To Go?

April 21st, 2009 by Skip McGrath

eBay’ s decision to spin off Skype was a brilliant decision, so could PayPal be next?

eBay overpaid for Skype and they never succeeded in integrating it into the eBay platform. Yet Skype continued to grow and its prospects for the future are excellent. So eBay’s decision to spin Skype off into their own IPO works. Skype will get some initial cash from the IPO and eBay will continue to participate in Skype’s growth and profits. If Skype reaches its full potential eBay will reap great rewards over time –much more than they could have realized by selling it in today’s market.

It is no secret that eBay is hurting. They are losing market share to Amazon and other ecommerce sites. Management is going through an identity crisis; one week they think they are Amazon and the next they want to become Overstock.com. eBay will report earnings tomorrow and I don’t think it will be pretty.  Some analysts forecast that eBay marketplaces will be down 20% or more. But, the brightest star in the eBay, Inc. holdings is PayPal.  Yes, PayPal has some detractors, but the problems I see with PayPal are minor. In fact, if eBay Marketplaces were as well managed as PayPal they would not be struggling today.

It makes sense to spin PayPal off into an IPO for the same reasons that Skype did. Freed of the eBay encumbrance, PayPal can continue to grow and increase market share in the online payments industry where they now account for almost 10% of all online transactions.

A PayPal IPO would increase shareholder value and allow eBay to concentrate on their core business – providing online platforms such as eBay and the various classified sites where buyers and sellers can come together. And PayPal would be free of eBay’s constraints where other online companies would not see them as a competitor. This would also be a good move for eBay sellers. eBay could now focus exclusively on repairing and growing the marketplace.

Skip McGrath

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