Sometime in the third quarter, eBay (EBAY) will spin off PayPal, returning its payment division to a standalone company.
Originally, for $1.4 billion, and after 15 years together the auction giant has claiming the two businesses will be more valuable as separate entities.
Last month, PayPal announced its intention to symbol PYPL on the Nasdaq exchange.
Most analysts have high hopes for PayPal stock, but the consensus for EBAY stock has been mixed. Of the 44 analysts providing recommendations to MarketWatch.com,
Despite Struggles, eBay Continues to Grow
Share prices have consistently increased (EBAY stock is up more than 21% over the past year and more than 175% over the past five), despite eBay’s , which dropped from — due largely to a hefty $3.2 billion tax payment in the first quarter of 2014.
But some of that decline was undoubtedly also due to the Panda 4.0 search ranking algorithm released by Google (GOOG, GOOGL) last May, which ultimately resulted in the loss of 80% of eBay’s organic traffic.
However, , SEO expert and founder of WordStream.com, explained that Google was not entirely to blame, and eBay’s
Regardless, EBAY stock survived the Panda 4.0 rollout and has actually risen more than 16% since then. Considering the significant decrease in net revenue over the course of a single year, there have been suspicions raised about internal accounting measures and damage being somehow hidden from the public.
EBAY Stock Faces Uphill Battle Without PayPal
Additional bearishness over the future of EBAY stock stems from the PayPal spinoff and the fact that PayPal revenue accounts for almost 44% of eBay’s total revenue. Using the $17.95 billion in gross revenue reported by eBay for 2014, this means after the PayPal spinoff.
As of March, eBay’s revenue was $18.09 billion for the trailing 12 months. Subtracting the $8 billion lost in the PayPal spinoff would leave eBay with just over $10 billion in total revenue. Management released revised guidance for FY2015 and , but that figure still includes revenue from PayPal.
If the PayPal spinoff occurs in the third quarter, management’s guidance would seem to suggest that eBay thinks it’s possible to bring in additional revenue equal to what will be lost to PayPal. Investors and analysts are left to wonder what eBay’s new CEO Devin Wenig, who will take the reigns after the PayPal spinoff, has planned to accomplish such a feat.
Earlier this year, it was reported that eBay looking for luxury items, and Wenig said the auction giant would be tailored toward consumers
Last month, eBay disclosed its intention to introduce promoted listings — a system that will in search results — and a cost-per-sales system — a new advertising platform where sellers will only be charged when buyers actually purchase items after clicking ads.
Most recently, , with hopes that jumping on the bandwagon will give revenue a boost.
Another concern for the future of EBAY stock is the . As of the end of 2014, eBay’s total cash and equivalents was slightly more than $6.3 billion. Giving $5 billion to PayPal would leave eBay with only $1.3 billion, which amounts to a drastically reduced ability to capitalize on opportunities and fund acquisitions.
Bottom Line on EBAY Stock
such as Amazon (AMZN), and countless eBay sellers are increasingly frustrated and confused by the onslaught of policy changes, fee hikes, and poor customer service they’ve been receiving over the years.
EBAY stock isn’t likely to collapse following the PayPal spinoff, but it also isn’t likely to regain any of its former luster.
As of this writing, Greg Gambone did not hold a position in any of the aforementioned securities.
