Will eBay (EBAY) Spin-Off PayPal?
A story in the New York Times on Wednesday suggests that maybe it is time for eBay Inc. (NASDAQ: EBAY) to spin off its online payment service, PayPal in order to allow the unit to reach its full potential going forward.
The idea comes as PayPal announced that it will double its Asian staff by the end of the year, while eBay expects the unit to generate up to $1 billion in profit in 2010.
While eBay laid the groundwork for PayPal to grow, the unit is still only controlling less than one tenth of the more than $600 billion market for online transactions. By being detached from eBay, a competitor in the online shopping market for most businesses, it would open PayPal up to a broader client base in the future.
PayPal now controls nearly 80 percent of eBay transactions in the U.S. and is growing in emerging markets around the world.
While the control in this market is a positive, the auction business for eBay is mature and sees little signs of rapid growth to spur movement for its payment unit.
If PayPal were to spin off, and cut some of its ties to the eBay name, the market would open up for the unit and more businesses would see it as an opportunity and not as a competitor working for another business.
Perhaps the only way to save PayPal’s future in the online marketplace, it may in fact be necessary to allow the unit to leave the nest and operate on its own.
In addition, eBay struck a deal on Thursday with China UnionPay Co., the largest electronic-payment-service provider in China, to open consumers in the country to shop from overseas merchants. The deal will open a large market for the PayPal unit.
PayPal current accounted for one-third of eBay's revenue in the fourth-quarter of last year.
Shares of eBay are up 13 cents on Thursday to $27.11 in midday market movement.
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