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eBay Spinning Off PayPal, Finally!

Posted on Friday, Oct 24th 2014

Online retailer eBay (Nasdaq: EBAY) finally bit the bullet and took the call on spinning off their payments unit PayPal. The decision has already led to Board battles and now the resignation of VC Marc Andreessen from the Board.

eBay’s Financials
Meanwhile, eBay’s third quarter revenues grew 12% over the year to $4.35 billion, missing the market’s projections of $4.37 billion. They ended the quarter with an EPS of $0.68, ahead of the Street’s estimated $0.67 for the quarter.

By segment, revenues from the marketplace segment grew 6% to $2.16 billion and PayPal revenues grew 20% to $1.95 billion. Enterprise revenues grew 3% to $259 million. During the quarter, eBay’s active buyers in marketplaces grew 13% to 152 million active buyers. PayPal added 4.4 million new active customers and is trending to exceed 1 billion in mobile transactions alone.

For the current quarter, they projected revenues of $4.85 billion-$4.95 billion with an EPS of $0.88-$0.91. The market had forecast revenues of $5.16 billion with an EPS of $0.91 for the quarter. eBay dropped their revenue forecast for the year to $17.85 billion-$17.95 billion compared with $18 billion-$18.3 billion announced a quarter ago. They expect to end the year with an EPS of $2.95-$3.00. The Street was projecting the year’s revenues at $18.15 billion and an EPS of $2.97.

eBay PayPal Spin-Off
eBay finally settled the debate regarding PayPal by announcing the decision to spin it off. Earlier during the year, investor Carl Icahn insisted on getting the company to split because he felt that the move would increase value for both companies. However, the Board was not entirely convinced, causing a stand-off. Earlier this year, though, the Board reached a decision and announced the separation will take place by the end of the year.

Analysts believe that while the move will help PayPal wider access to forge alliances with other retailers and financial firms, it will also make both eBay and PayPal more vulnerable to a possible take-over by players like Alibaba who want to gain a wider share of the US market.

eBay’s Improving Marketplace
With PayPal gone, eBay will need to strengthen their marketplace segment. As part of this need, they recently announced several enhancements and offerings to the segment. This month, eBay entered into an agreement with Invaluable to begin offering live art auctions on their website. The live auctions will let their users bid on a live auctions irrespective of their location. The items on sale will be offered directly by world class traditional auction houses like Doyle New York, Freeman’s, Garth’s Auctions, and Swann Auction Galleries. eBay’s consumers will be able to preview catalogs, sign up for auctions, and bid at the auction. They will also be able to enter an absentee bid before the auction begins. eBay also entered into a similar agreement with Sotheby’s, but dates of their auctions have not yet been finalized.

They are also investing in marketing efforts, and to get ready for the upcoming holiday season, they are launching a uniform brand campaign across their four biggest markets of the US, the UK, Germany, and Australia. The ad is also meant to send a message to the market that eBay is not only an auction website, but also a global e-commerce retailer. eBay still has to grapple with the image of consumers having to bid on their website to purchase items, a strong contradiction from the fact that eBay actually has 78% of their items sold at a fixed price.

Earlier this month, eBay also announced the acquisition of Las Vegas startup Rumgr for an undisclosed sum. Rumgr was founded in 2011 to offer an easier substitute for Craigslist. Rumgr is a location-based marketplace service that lets users trade in their used products by simply taking a picture and putting it on their site.

eBay’s stock is trading at $50.79 with a market capitalization of $63.1 billion. It touched a 52-week high of $59.70 in February this year.

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