eBay (EBAY) Plan to Spin-Off PayPal to Unlock Value - Baird

Baird analyst Colin Sebastian weighed in on eBay (NASDAQ: EBAY) after the company announced plans to spin-off PayPal.

"While not without risks (i.e., Marketplace subsidization of overhead costs, customer acquisition, network effects) we believe a separate Payments platform provides better operational transparency for investors, as well as a distinguishable growth strategy independent of Marketplace trajectory, particularly given the rapidly evolving digital payments landscape and expanding payment opportunities outside of eBay," Sebastian said.

The deal is seen unlocking shareholder value, according to Sebastian. "We view this as a favorable deal for shareholders, as well as for PayPal, which it appears will end up with a disproportionate amount of cash and none of eBay's parent debt. Independent PayPal will be well capitalized and free to focus on key growth initiatives, without the distraction/consideration of the Marketplace segment. We believe PayPal remains the most valuable eBay asset, and based on our sum-of-the-parts analysis (page 2), contributes ~$33/share to eBay's current market price. With the proposed transaction stacking disproportionately more capital to PayPal, we believe this beneficial arrangement improves the value of the combined entity as it stands today, with a fair value between $63/share and $65/share."

The firm maintained an Outperform rating and price target of $63 on the stock.

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 $52.66 yesterday.

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