The Great Debate UK
Should Ebay change its name to PayPal? The Internet group’s auction business is mature. Yet its online payments business is growing fast. Plans announced on Wednesday to double PayPal’s Asian staff by the end of the year accentuate the point. A better idea than changing the stationery, however, is spinning off PayPal.
Most analysts who follow Ebay also cover online retailers like Amazon rather than financial firms like Visa. This can lead to misunderstandings. Before the financial crisis, analysts covering General Electric, for example, focused on the conglomerate’s industrial side and missed big risks in its financial arm.
Ebay has the opposite problem – an overlooked opportunity. The company estimates PayPal will generate up to $1 billion of operating profit next year. Put this conservatively on the same multiple as the slower-growing Visa, and its value is over $12 billion, or approaching half Ebay’s current enterprise value.
Moreover, PayPal’s online payments platform is becoming the standard in an industry where winners often gain most of the spoils -- yet the company so far has less than a tenth of the $600 billion market for online transactions.
A spin-off would have other benefits. Sure, its link with Ebay gave the company rich soil for growth. PayPal’s penetration in Ebay sales has increased both at home and overseas, and now reaches around 80 percent in the United States.
That success, though, means PayPal now increasingly has to look outside this protected garden for growth. That would be easier if it were independent, rather than attached to a business that many potential customers regard as a competitor.
Ebay might be reluctant to give up its growth engine. But its other businesses should generate around $2 billion of operating profit this year. Put this on a hefty 25 percent discount to the 13 times multiple on which peers trade, and it’s worth $23 billion according to research from FBR.
Throw in its minority Skype stake – which may be worth nearly $2 billion – and Ebay’s parts are worth $37 billion, or a premium of more than 20 percent to the company’s current enterprise value. It’s time for PayPal to prepare to leave the nest.
Skype looks like Silicon Valley's best hope for a blockbuster initial stock offering in 2010. With Facebook determined to stay private until next year, the former eBay orphan could steal the scene with a quick flip. Moreover, as a result of clarifying copyright issues and rewriting its code to attack the business market, the company may be worth twice its $2.75 billion price tag when eBay sold all but 30 percent of its stake last year.
The company already has 500 million users and made $48 million in the third quarter, its last before going private. That's good, but eBay wasn't a natural owner. Its core auction and payments businesses had little to do with managing a communications firm.
from The Great Debate:
Do once-hot Internet start-ups who miss a date with destiny ever truly get a second chance? History says no, even for once-great names like Netscape, AOL and MySpace.
Skype hopes to be the exception. On Tuesday, a group led by top Internet financiers in Silicon Valley and Europe agreed to pay eBay $1.9 billion in cash for a 65 percent stake in the one-time web calling sensation.
California Governor Arnold Schwarzenegger is pulling out all the stops with the state's "garage sale" of unclaimed or unneeded merchandise. The idea came to him via a "tweet," he's using his Hollywood cache to juice bidding and it's all in the name of belt tightening.
The LA Times has the story:
In his latest effort to balance the budget, the governor is cleaning out the state's storage sheds and holding a garage sale on Craigslist and EBay.