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.