Why eBay’s Q3 results show PayPal spinoff was the right decision



eBay’s Marketplaces revenue growth rate continues to decline

Earlier this month, eBay Inc (EBAY) surprised the world by abruptly announcing that it would spin off PayPal by next year. Although a proxy war with Carl Icahn had been ongoing for a long time, eBay had categorically refused the split earlier. Yet eBay and PayPal had been on different growth trajectories for a while, which is why shareholders urged eBay to spin off PayPal. This hypothesis gained support last quarter when eBay reported only 6% year-over-year revenue growth for its Marketplaces segment, while PayPal’s revenue grew by 20%.

As the chart below shows, eBay’s Marketplaces’ year-over-year growth continued to decline. Meanwhile PayPal consistently managed to maintain its growth.

Learn more about the spinoff by reading Must-know: What eBay shareholders should expect this year.

eBay and Paypal growth rates

The factors slowing eBay’s growth 

In Part 1 of this series, we learned that the cyberattack on eBay and Google Inc’s (GOOG)(GOOGL) SEO change were the main reasons revenue growth declined during the last two quarters.

If we forget about those two quarters and look instead at the previous two quarters, we see that eBay had been growing at about a 12% rate. And this growth rate is still considerably less than what Amazon (AMZN) has been achieving. Read Why Amazon is focused on revenue growth more than margins.

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Alibaba Group Holding Limited (BABA) recently became a public company in the U.S. It’s the world’s largest e-commerce player in the world in terms of gross merchandise volume, or GMV, and it achieved 45% year-over-year revenue growth in 2Q14. Read A must-read look at Alibaba Group Holding’s upcoming IPO.

Separation from PayPal could help eBay focus more on a strategy to grow its business. As eBay’s management said, “separation will allow eBay to more clearly align its strategy, cost structure and capital allocation in a way that’s good for our customers and good for shareholders.” At the end of the day, considering the completely different growth trajectories of eBay and PayPal, separation was the right decision.


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