The five reasons behind PayPal's split from eBay

2: Shareholder pressure

EBay insists it decided to split after conducting its own “thorough review”, but it is not kidding anyone. It is clear that Carl Icahn was one of the major drivers. The activist investor, who owns 2.5pc of the online auction house, has run a nine-month campaign for the separation of the two companies.

At times his campaign was damaging. The billionaire hedge fund chief planted seeds of doubt amongst other investors, as he described PayPal as a “jewel” whose value was being “covered up” by the larger eBay behemoth.

He also lambasted eBay’s boss, Mr Donahoe, as “completely asleep”. It is hard for a chief executive to retain investor confidence with that sort of noise in the background, and so it came as little surprise when Mr Donahoe announced he would step down as chief executive once the separation is completed next year.

3: Overnight increase in value

Some businesses are greater than the sum of their parts, but in eBay’s case, many analysts and investors believe the opposite is true. PayPal was valued at just $1.5bn when eBay snapped it up, but its steady growth over the last decade has catapulted that valuation to north of $50bn.

This is hardly reflected in eBay’s $69bn market capitalisation, especially when you take into account that the online auction site still accounts for more than half of the group’s revenues. Separating the two companies will force investors to appraise them separately, and unlock extra value overnight.

4: Different strategic priorities

Arguably the best reason for PayPal’s separation from eBay is that they are very different businesses, operating in very different markets, each with their own set of strategic priorities. PayPal’s revenues are increasing at around twice the rate of eBay’s, with annual growth of 19pc, compared with the online marketplace’s 10pc, but it also exists in a more competitive and rapidly changing marketplace. The carve-up will allow each business to focus on what is best for them, rather than what is best for the larger group. That much is already evident from the appointments announced on Tuesday: Dan Schulman, former head of American Express’s online and mobile payment business, will become chief executive of PayPal after the split, whilst the new eBay will be headed by Devin Wenig, currently president of eBay marketplaces.

Those riches could increase considerably over the long term, depending on who you believe. Earlier this year, PayPal’s co-founder Elon Musk and former chief operating officer David Sacks – neither of whom remain with the business – predicted that PayPal could be worth more than $100bn if it were allowed to go it alone.

5: It puts a For Sale sign above PayPal

eBay gave lots of reasons for the split, but it did not mention one crucial one. By telling investors that it planned to carve the business up, it was essentially putting PayPal in play.

It could be a juicy target for the right buyer. Gene Munster, an analyst at Piper Jaffray, said that Google could pay as much as $65bn for the business, acquiring it to give its existing Google Wallet payments project a boost. The Californian web search giant knows online payments are strategically impirtant, and has spent several years trying to make its Google Wallet work, but has only enjoyed luke-warm success. It is likely to be in the market for a short-cut now that it has new competition from Apple.

Alternatively, Alibaba, the Chinese ecommerce giant, could spend some of its IPO cash on the business. PayPal would offer a good strategic fit for the company, which is similar to eBay but many times the scale. More importantly, the acquisition could be just the brand Alibaba needs to help it become accepted by mainstream Western consumers.

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