The PayPal Split Is Like A Great Painting: Everybody Sees Something Different In It

The PayPal/EBay separation is a story of contradictions. eBay says that the fast pace of the payments space—and the huge recent changes (Apple Pay and Alibaba’s IPO)—require a move right away: So they’re saying that they will separate by the end of 2015.

The eBay board passionately and publicly disagreed with Carl Icahn, saying that splitting the companies would be a horrible idea. And after Icahn backed off, that is precisely what they did. eBay CEO John Donahoe told The New York Times: “We ‘got to the same place that Carl said early on.'”

More contradictions: The split will strengthen the competitive position of both firms, with extensive speculation that it’s really all about selling those units directly to one of those competitors.

In the payments world, though, the questions are focused on PayPal and whether an independent PayPal—or a PayPal that is slated to be independent, assuming it’s not acquired before the end of next year—is more or less attractive to do business with. Will it strengthen PayPal as it will have a little more freedom to sell to people who don’t like eBay? Or will it weaken PayPal, which might happen if eBay pulls some or all of its business from PayPal and gives it to various rivals?

Piper Jaffray senior research analyst Gene Munster speculated on CNBC about how Alibaba might play a role. “The one element that this really opens up is the concept that Alibaba could purchase the [eBay] marketplace.”

Alibaba—which just completed the biggest initial public offering ever at $25 billion—would more likely be after eBay’s marketplace distribution in the U.S. instead of PayPal because the Chinese e-commerce giant has its own online payment arm Alipay, said Munster, who covers eBay, CNBC reported.

That story also quoted Bob Peck, analyst at SunTrust Robinson Humphrey, who saw merged channel retail playing a key role. “It’s growing just a little below generally where e-commerce is. You got the core auction businesses. But it’s really that omni-channel business that’s the big future for eBay.”

AtonRa Partners issued a research note that “a standalone PayPal will have the opportunity to accelerate revenue growth through PayPal’s integration on other large marketplaces such as Amazon and Alibaba. That said, investors should not overlook the negatives. First, eBay has probably discussed a sale of the business with potential predators (Apple, Amazon, etc.) in recent months and did not get the expected price. This means that tech companies are well aware of the risks of buying a richly valued business while the competitive landscape is evolving fast. Second, PayPal could lose some ‘easy business’ with eBay (assuming that eBay will open up to rival payment systems) and could find it difficult to develop business with Amazon or Alibaba that are also involved in mobile & online payment initiatives.”

Wall Street analyst Marshall Hargrave also put out a research note and made a curious comment, that he saw something very different than the payments hyper activity that most others saw. “The payments business is slowing down and now looks like the ideal time to sell off PayPal. This could also be a ploy to see what types of buyers or partnerships the company can drum up for PayPal. However, there are concerns where eBay accounts for over a quarter of PayPal’s transactions. That’s a large number of eBay customers that use PayPal to complete their transactions. PayPal is the mobile payment system, which services payments for eBay customers, and it makes sense to isolate the value of PayPal from eBay’s stock price. Thus, it’s likely that eBay is being valued at less than the sum of its separate parts, and a spin-off such as this would enhance the value of eBay as a whole.”

“Everyone is out to eat PayPal’s lunch,” said Jordan McKee, a senior analyst for mobile payments at 451 Research. “Now more than ever, PayPal needs to innovate, be nimble and move fast to fend off these competitive threats.”