EBay is planning to separate its payments system PayPal, into a separate company.
This news, due for completion in the second half of 2015, resulted in an increase of 7.5% in eBay’s share value.
This is noted as a reversal of company strategy as it had previously resisted the pressure placed on them to separate. However, the boss states that the reason for running the companies jointly has changed.
PayPal is experiencing double the growth in revenues of eBay. The annual revenue for PayPal is $7.2bn, while eBay is showing $9.9bn, and it is growing at a steady 10% per annum.
EBay’s chief executive, John Donahoe, said that after a complete strategic review, it was found that keeping the companies together after 2015 will not be competitively and strategically viable. Carl Icahn, an investor, placed pressure on eBay to sell PayPal earlier this year, but the board resisted the plan, prompting him to ditch his efforts due to lack of support. No doubt, he is pleased at the board’s decision and stated that this move will enhance the value for all the shareholders.
Analysts have shown pleasure at this move as it deems it as a strengthening of PayPal’s position, particular in view of other e-payment systems entering the market, such as Alibaba’s Alipay and Apple Pay.
According to EMarketer estimations for the US, mobile payments by the use of smartphones will top $3.5bn during 2014 and thereafter increase to $118bn by 2018.
PayPal was acquired by eBay during 2002 at a cost of $1.5bn. It has since become eBay’s fastest-growing business, boasting 143 million active users as at the end of 2013, a 16% increase from the previous year.
The current American Express co-executive, Dan Schulman, will become the new president and chief executive of PayPal, and Devin Wenig who is currently the president of eBay Marketplaces, will take on the role of chief executive of eBay.
1 OCTOBER 2014, USA
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