EBay and Paypal will officially sever ties later during the third quarter of this year.
According to Forbes, the first quarter was very good to Paypal, but just okay to eBay. Still, both companies are listed as one entity, and as a combined unit, eBay beat expectations and gained five percent in overall value in after-hours trading.
Though it was stated earlier in the year by eBay that the company would split during the second half of 2015, eBay CEO John Donahoe specified that the split would take place within the third quarter of this year. During a conference call, Donahoe, who will become CEO of Paypal after the split, spoke little, leaving the majority of the call to current Paypal CEO Dan Schulman and incoming eBay CEO Devin Wenig.
“We are in one of the most exciting periods in the history of financial services,” said Schulman, a former American Express executive who’s now overseeing a payments arm where revenue rose 14% year-over-year. “The online and offline payments worlds are digitizing and converging on mobile.”
Separately, however, the companies show signs of going in different directions. Paypal, for the first quarter, earned eBay $2.11 billion, whereas eBay’s merchandising and selling earned $2.07 billion. This was attributed to 3.6 million more active Paypal users generating more than $61 million, a gain of 18 percent. Some analysts have Paypal, as a separate entity, valued at around $40 billion.
Fortune is reporting that Paypal even outsold eBay, selling $2.1 billion for the first quarter, a gain of 14 percent. compared to the 4 percent falloff at eBay, with sales of $2 billion. Many are attributing the sales decline at eBay to competition from other websites, such as Amazon.
For some time now, Paypal has been eBay’s fastest growing segment. With increases in digital and mobile payments, it was inevitable. Couple that with the decrease in purchasing products from eBay, and it shows that eBay has more ground to gain after the split.
Donahoe explained that the symbiotic relationship eBay and Paypal shared had grown weaker, and rumblings from the stockholders, specifically investor Carl Icahn, for the two companies to separate. It was thus decided that the two companies should part ways.
This does make eBay seem a bit weaker, and possibly a target for acquisition, perhaps from Chinese superseller Alibaba. Further, Wenig stated that Google had changed its search engine algorithms, and the change was adversely effecting eBay item listings in the search engine. Wenig says a fix for that is being investigated.
The one thing eBay doesn’t have to worry about is competition from Paypal. According to the terms of the split, neither company can compete against the other. It was not disclosed if there is a time limit on these restrictions.
[Image courtesy of Protege Solutions]