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eBay (EBAY)/PayPal Spin-Off Will be Determined by Core Performance - Cantor

March 13, 2014 11:47 AM EDT Send to a Friend
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Analyst Youssef Squali of Cantor Fitzgerald discussed a potential PayPal spin-off by eBay (NASDAQ: EBAY) in a research note on Thursday. The analyst pointed to potential for deeper integration with other marketplaces post-spin. However, synergies with eBay exist. In summary, Squali said a spin-off may depend on management's ability to hit 2015 guidance.

"One of the strongest arguments in favor of a standalone-PayPal is the potential to accelerate TPV and revenue growth through PayPal's integration on other marketplaces including Amazon and Alibaba, which would make it even more valuable. A 10% penetration for PayPal on Amazon (for illustration purposes only), would add ~$13B to TPV, ~$400-500M to revenue and $70-100M to EBITDA for PayPal in 2014, by our estimate," said Squali.

"Closed-loop transaction data from eBay helps reduce PayPal's fraud losses, with PayPal's transaction loss rate at ~0.2% currently vs. ~0.4% prior to its acquisition. We estimate that if stand-alone Paypal's loss rate were to increase by ~10-20bps, it would result in ~$220-440M hit to revenue and EBITDA in FY:14, all else equal. Other synergies include eBay driving ~30% of new member growth at PayPal, eBay being a low-cost funding source and a venue of growth for BML, and eBay continuing to use its balance sheet to help Paypal make acquisitions," he said.

"Management has been in the penalty box given its failure to hit its initial 2015 guidance, having to lower expectations on the 4Q:13 call. While the new guidance seems more achievable, it is by no means a slam-dunk, as it implies some acceleration in both Marketplace and Paypal. The next few quarters' results will determine whether eBay will be able to hit the new 2015 guidance. Failure to deliver on this will increase shareholders' pressure to act, giving fodder to Icahn's position to spin-off Paypal," concluded the analyst.

Cantor Fitzgerald maintained a Buy rating on eBay (NASDAQ: EBAY) with a price target of $65.00.

For an analyst ratings summary and ratings history on eBay click here. For more ratings news on eBay click here.

Shares of eBay closed at $57.98 yesterday.




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Comments

"PreyPal"
Philip Cohen on 2014-03-14 07:22:11
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Notwithstanding that I am otherwise a vociferous critic of eBay, this time I have to agree with Johnny Ho that eBay should not let go of �PreyPal�. Without its existing integrated relationship with the eBay marketplace, the value of the clunky �PreyPal� would be reduced greatly (eBay actually generates ~30% of PayPal new users with no customer acquisition costs for PayPal and half of PayPal's profits come from transactions on eBay where �PreyPal� is well integrated and virtually mandated); and, worse still, without �PreyPal�, the value of the eBay marketplace would be reduced by some 40% (�PreyPal� currently contributes ~42% of eBay�s profits) �

I hate to admit it, but for once Johnny Ho has got it right; no doubt Carl Icahn is correct in many of his other criticisms of eBay but with respect to �PreyPal� he clearly has no understanding of the value of the inextricable and mutually supporting nature of the incestuous relationship between these two clunky, disingenuous, unscrupulous, commercial entities, and in particular, the precariousness of PayPal�s clunky business model �

Notwithstanding the amount of disingenuous nonsense that constantly emanates from the eBay Dept of Spin, PayPal is a clunky middleman, in the main riding precariously, at the pleasure of the retail banks, on the backs of those retail banks� existing payments systems. PayPal has little more than one percent (~1.1%) of the world�s total payments business (and even then much of its payers� funds are sourced via MasterCard/Visa); the �bankcards�, MasterCard and Visa, have ~90% of this market between them and Amex has another ~8%, and both MasterCard and Visa have recently launched their own �professional� mobile/plastic POS/online digital wallets: MasterCard's "MasterPass" and Visa's "V.me"; undoubtedly these two new professional entrants will ultimately bury most of these middlemen payments pretenders�particularly the clunky "PreyPal" ...

The reality is that the clunky PreyPal�s �best before� date is approaching; as a �stand-alone� operation that �best before� date would simply arrive even sooner �

Regardless, as long as Carl Icahn continues to dig his spurs deep into the narcissistic, sociopathic Johnny Ho�s person, for me, all is well in the world, but �

�Never ever hire an MBA; they will ruin your company.��PayPal founder, Peter Thiel

Regardless, none of the above can outweigh the fact that Johnny Ho is otherwise a talentless, destructive, narcissistic sociopath and that under his direction eBay Inc. is proceeding apace down the toilet and is ultimately going to finish up at the sewage farm �

The ugly reality of eBay Inc.:
eBay's crooked auctions marketplace ... http://bit.ly/11F2eas
eBay Motors (UK sampling): Auction Fraud Galore ... http://bit.ly/I2gTEU
eBay Motors XSS Redirect Scams in Action (video) ... http://bit.ly/1d46NvE
eBay/Gumtree / Barclays Bank Motors Scams � http://bit.ly/1c9Uwck
eBay's clunky, unscrupulous "PreyPal" ... http://bit.ly/UVXx53
The ongoing joke of eBay Inc. ... http://bit.ly/YvxFEg
Fun quotes from the eBay executive suite ... http://bit.ly/12xvzyA


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