E-commerce giant eBay on Tuesday announced spinning off its subsidiary PayPal, a payment gateway, by next year in order to explore different core businesses.
While the announcement of separation may have put an end to the in-house fighting and months of speculations among the business world, the million dollar question now rises is what would happen to the two companies following their split?
Current eBay CEO John Donahoe, who will not head either of the two companies following the spin-off, expressed hope in their successful and independent businesses.
“We’re not doing this to set either business up for sale. Post-separation, if you use current valuations, you’ll have two very significant companies with market caps well above $30 billion each,” Donahoe said during an interview with a leading news portal.
Hedge fund billionaire Carl C. Icahn begged to differ on Donahoe’s submission.
In a post on his website this morning, Icahn emphasized upon consolidation, saying PayPal required to undergo acquisition or merger with the existing players to realize its full potential in the payments field.
“The sooner these consolidations take place, the better,” he wrote in his post.
In the meanwhile, the question arises what will happen to the eBay’s marketplace following the ouster of PayPal which is a good source of business for the e-commerce giant?
Experts say after the separation, eBay will be still left with worth between USD 30 billion to USD 40 billion. Moreover, it will continue to enjoy the number two position as the e-commerce player in the United States, staying only behind Amazon.com.
eBay may not hold the exact sheen of its payments counterpart PayPal, but some observers believe the e-commerce firm could be attractive to Alibaba, the Chinese internet giant that has recently made the largest initial public offering (IPO) debut worth USD 25 billion in the US market.
Gil Luria, an analyst at Wedbush Securities, said, “What Alibaba has said is that part of its long-term plan is to get into the Western markets. There would be no easy or better way to do that than by buying eBay’s marketplace business. They have similar business models in that they don’t carry any inventory.”
Alibaba’s key subsidiaries in Tmall and Taobao can’t be overlooked as both marketplaces are facilitating consumer-to-consumer and business-to-consumer relationships, allowing transactions of goods very much similar to eBay’s auction-based online marketplace.
It’s true that the Chinese giant far outstrips its American competitor in terms of size. But Alibaba is a slow runner that wins in almost every battle that it fights. In the 12 months period since the June-end, the gross merchandise volume of Alibaba or the total value of transacted goods across its sites hit USD 296 billion. However, the gross merchandise volume of eBay for the same period was USD 85 billion, just over a quarter of Alibaba’s figures.
“It’s certainly a possibility. If the US is the focus of their growth, it’s going to be hard to crack given its current brand recognition here,” said Morningstar analyst RJ Hottovy of Alibaba sizing up eBay.
Recalling the historical past of both the companies, the then eBay’s CEO Meg Whitman had in 2005 attempted to acquire a portion of Alibaba’s business. After two years of rigorous battle, Whitman flew out Alibaba’s Jack Ma to her firm’s headquarters in San Jose to explore the possibility.
In the meetings, Whitman demanded for Taobao, Alibaba’s subsidiary which was launched in 2003 against eBay’s Chinese online auctioneer, EachNet.
The demand was clearing an indication that Taobao dominated EachNet and Ma succeeded in realizing his famous declaration: “eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose—but if we fight in the river, we win.”
Now, as Ma’s Alibaba has gone bigger, especially after a powerful IPO debut, this would be interesting to watch whether ‘the crocodile is ready to swallow the shark’.
Latest posts by Christina Langfold (see all)
- Scientists Discover the Second Fastest Spinning Pulsar In The Universe - Mar 16, 2019
- Coral Reef Damage Scares Florida Keys Researchers and Businesses - Mar 16, 2019
- Nike to Slash Global Workforce by 1,400 - Mar 16, 2019