Why Did eBay & PayPal Split?


Welcome to the Investors Trading Academy event
of the week. Each week our staff of analysts and educators tries to provide you a better
understanding of a major market event scheduled soon and that have an effect on the global
markets. We are a few days behind the ball on this one as the official timing of the
EBay PayPal split was kept quiet. It is official, on Friday, July 16th at the close of business
the two companies split. As of trading Monday morning July 20th, eBay and PayPal will trade
under separate tickers. On the eve of their momentous split, eBay
and PayPal reported earnings as a united company for one last time. Before markets opened on
Thursday, the two entities, together as eBay Inc., announced second quarter results that
beat consensus earnings estimates and sent the stock up more than 3% in pre-market trading.
PayPal accounted for $2.26 billion of eBay’s second quarter revenue, more than the $2.12
billion contributed by the core marketplace business. The payments firm processed $66
billion in payments in the second quarter, up 28% on a foreign exchange-neutral basis.
It now has 169 million active accounts, up 11% from the same three-month period last
year. Disregarding the effects of foreign exchange,
the total amount of goods sold on eBay’s marketplace grew 6% to $20 billion. There
are 157 million active buyers on the marketplace, the company said, representing a 6% growth
from last year’s second quarter. After spending much of this year explaining
why its two businesses are best left together, eBay’s board of directors and CEO did a complete
about-face late in 2014, announcing a plan under which its PayPal and eBay marketplace
businesses will be split into separately traded public companies by the middle of this year.
And CEO John Donahoe will step down as CEO of eBay now that the split is done.
PayPal is due to begin trading separately on the NASDAQ on July 20th, creating a new
company that some analysts say will be worth about $40bn. PayPal will continue to be used
as eBay’s main payment provider, and nothing is expected to change for customers. eBay’s
market value is expected to drop from more than $75bn to around $30bn. It means that
PayPal will immediately be worth more than its parent company.

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