EBay’s decision to spin PayPal off into an independent entity opens up both businesses to the possibility of an acquisition, a new report said Wednesday. And, such a deal would be attractive to companies like Google and Alibaba, which are looking for ways to cement their dominance of the highly competitive Internet economy.
At a time when Apple’s new Apple Pay mobile-payment service is set to enter the market, acquiring PayPal -- with 152 million active registered accounts -- will help Google extend its lead in the online payment market as it could potentially integrate PayPal’s technology into its Android operating system, Bloomberg reported, citing Gene Munster, an analyst at Piper Jaffray. The report also quoted another analyst as saying that Alibaba, which debuted on the New York Stock Exchange on Sept. 19 with the world’s biggest ever initial public offering, could also be interested in PayPal.
“Now that PayPal will be a separate company, there’s absolutely a possibility of an acquisition. There’s a strategic benefit that PayPal would bring, whether it’s to Google or Alibaba,” Daniel Johnson, a money manager at River Road Asset Management, told Bloomberg, adding that private-equity suitors “could see the value of the underlying cash flows at EBay marketplaces and the ability to leverage those cash flows to make an attractive return.”
Meanwhile, Munster had said in a Sept. 15 report that it could cost Google somewhere between $50 billion and $62 billion to buy PayPal alone. However, eBay CEO John Donahoe told Bloomberg that the split with PayPal was not influenced by the prospect of a buyout deal.
“This is clearly not being done to set any business up for sale,” Bloomberg quoted Donahoe as saying. “This is being set up for each business to compete and succeed in their respective environments.”
While Donahoe has said that it was decided to split the company partly so that PayPal can more effectively respond to the demands of the changing payments market, Apple Pay is getting ready to allow consumers to conduct transactions with their mobile devices, an area where PayPal still lags behind, Bloomberg reported.
According to EMarketer, a New York-based market research company, mobile payments in the U.S. are estimated to reach $118 billion by 2018, up from $3.5 billion in 2014.
In the second quarter of 2014, PayPal revenues represented 45 percent of eBay’s total revenues, and according to the company, which makes payments in more than 100 currencies in 203 markets, its customers made 850 million transactions during the three-month period ending in June. EBay's own revenues for the same period were $1.95 billion, representing an annual growth of 20 percent.
EBay stock (NASDAQ:EBAY), which rose 7.54 percent in the previous trading session, was down 2.51 percent in pre-market trading on Wednesday.