Brand strength and flexibility behind eBay and PayPal split

Ebay boss John Donahoe says the decision to split eBay and PayPal into two separate companies will create two businesses with ‘strong, globally recognised’ brands that will be able to more easily adapt to changes in the ecommerce and payment industries.

PayPal ad
Paypal’s first UK TV ad highlights how you can use it to pay in retailers such as Mothercare.

Speaking on a call following the announcement of the split today (29 September), Donahoe said eBay had come to the end of its turnaround and is now positioned to be one of the “strong winners” in ecommerce. He said its “globally recognised brand” would help its growth, particularly in emerging market where customers are coming online for the first time.

Ebay revenue’s grew by almost 10 per cent year on year to $9.9bn in the past 12 months. It has 149 million active customers globally, while 200 million people have downloaded its app.

“Ebay is positioned to capitalise on future growth in emerging markets. This is a globally recognised brand and one that we expect people to do their first ecommerce transactions with in developing markets,” he added.

Ebay bought PayPal 12 years ago and has since seen it grow to a $7bn revenue company with 152 million users. Its growth has overshadowed that of its parent, with revenues up 26 per cent over the past year.

Donahoe said the two companies have had a “powerful reinforcing relationship, with “PayPal making eBay better and eBay making PayPal better”. However, the board has now decided that these synergies will decline over time as PayPal’s business off eBay grows faster than its business on eBay.

PayPal still accounts for around 80 per cent of transactions on eBay. However, PayPal’s reliance on eBay is declining, with the retailer now accounting for just 30 per cent of its total payment volume.

That number is expected to half over the next three to five years.

The split is aimed at opening up opportunities for PayPal to work more closely with the payments industry – be that with banks, merchants or technology providers.

PayPal wants to be better known for the range of payment solutions it offers, rather than just its relationship with eBay. Its recent brand campaign aimed to highlight the breadth of services it offers – including money transfers and the partnerships it has with retailers such as John Lewis and Mothercare that accept its payments.

“PayPal is now one of the most powerful and trusted brands on the web, facilitating one in every six dollars spent online globally. Spinning off PayPal creates a pureplay leader that is growing very fast at scale,” said Donahoe.

The two separate companies will continue to work together through a series of “arms-length” operating agreements. Ebay offer data on customers, platform for payment innovations, source of funding

As part of the split, Donahoe and eBay CFO Bob Swan will leave their positions, although they will take up roles on the board of the two new companies. Devin Wenig, currently president of eBay Marketplaces, will lead the new eBay after separation.

American Express executive Dan Schulman will join PayPal immediately as president and will take over as CEO following the split.

“This transaction creates two industry leaders each with significant reach and scale. It allows us to continue to focus on customers, innovation and execution to allow each business to compete and win going forward,” said Donahoe.

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