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eBay will spin off PayPal


merkhet
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Bad move in my opinion.  The Paypal/Ebay integration is beneficial.  The two companies often have to work together to fight fraud on Ebay.  I suspect that there are synergies because both companies have to spend a lot of time and effort on fighting fraud and the activities associated with doing that, e.g. customer support for legitimate customers whose accounts are accidentally frozen.

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Bad move in my opinion.  The Paypal/Ebay integration is beneficial.  The two companies often have to work together to fight fraud on Ebay.  I suspect that there are synergies because both companies have to spend a lot of time and effort on fighting fraud and the activities associated with doing that, e.g. customer support for legitimate customers whose accounts are accidentally frozen.

 

Well, the integration is beneficial for eBay -- but is it beneficial for PayPal?

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Bad move in my opinion.  The Paypal/Ebay integration is beneficial.  The two companies often have to work together to fight fraud on Ebay.  I suspect that there are synergies because both companies have to spend a lot of time and effort on fighting fraud and the activities associated with doing that, e.g. customer support for legitimate customers whose accounts are accidentally frozen.

 

Well, the integration is beneficial for eBay -- but is it beneficial for PayPal?

 

I don't think so. It might be better to think of this as PayPal spinning off eBay.

 

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Bad move in my opinion.  The Paypal/Ebay integration is beneficial.  The two companies often have to work together to fight fraud on Ebay.  I suspect that there are synergies because both companies have to spend a lot of time and effort on fighting fraud and the activities associated with doing that, e.g. customer support for legitimate customers whose accounts are accidentally frozen.

 

Well, the integration is beneficial for eBay -- but is it beneficial for PayPal?

Yes. 

(1) The integration is win-win.  More volume on Ebay is good for Paypal.

(2) Ebay forcing people to use Paypal is good for Paypal.

 

I guess I'm in the minority thinking that this is a bad idea.  I feel like people never really bothered to understand Ebay and Paypal, their history, etc.

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Bad move in my opinion.  The Paypal/Ebay integration is beneficial.  The two companies often have to work together to fight fraud on Ebay.  I suspect that there are synergies because both companies have to spend a lot of time and effort on fighting fraud and the activities associated with doing that, e.g. customer support for legitimate customers whose accounts are accidentally frozen.

 

Well, the integration is beneficial for eBay -- but is it beneficial for PayPal?

Yes. 

(1) The integration is win-win.  More volume on Ebay is good for Paypal.

(2) Ebay forcing people to use Paypal is good for Paypal.

 

I guess I'm in the minority thinking that this is a bad idea.  I feel like people never really bothered to understand Ebay and Paypal, their history, etc.

 

I think the market agrees with you.  EBAY should be up a lot more today if there is that much value being unlocked through the spin-off.

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I haven't a clue as to PayPal's cost per transaction -- and whether that's higher or lower than Visa, MasterCard, etc.

Paypal's cost per transaction mostly has to do with fraud.  If you read their early 10-Ks, it breaks out their margins and how they got pretty scared about fraud.  You can read the book Founders At Work for an interview with Max Levtchin, one of the founders.  Something like 30-40 of Paypal's competitors went out of business since then (including Ebay's in-house payments solution).

 

Visa and Mastercard are different.  They have amazing moats and pricing power.  Since they went public they started raising prices like crazy.

 

I think the market agrees with you.

If others agreed with me, investors would be harassing Ebay management to buy back shares and to buy fewer Silicon Valley startups.

The stock would be down today, not up.

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I guess what I am saying is that EBAY is a fairly efficient stock.  Icahn has been very clear with his intentions to spin-off Ebay.

 

So now investors get what they asked for, plus a new activist with Dan Loeb.  But the stock is only up 3% on the year?  8% on this news?  If the spin-off was as much of a slam dunk as everyonme wants you to believe, it should be up more. 

 

Hell even IRM was up a lot more when they were allowed to convert to a REIT.  That business is way less exciting than Paypal.

 

But then again one might say the market is wrong on this one and Ebay + Paypal > 57. 

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Does eBay now have an incentive to ask users to choose someone other than PayPal?

It depends on how the spinoff is structured.  I think that the legal contract will be fairly long.

 

1- It would make sense for eBay to continue to force people to use Paypal... I think.  The only innovation that matters is somebody figuring out better ways to reduce fraud.  Technology is the easy part.  It's fighting fraud, offering convenience, and providing good customer service cheaply that's the hard part.

 

If eBay opens up another payment option, it will make their system easier to attack.  Fraudsters will attack the weakest link.  There is probably some tight eBay/Paypal integration that only works between eBay/Paypal.  I know that when I download my Paypal transaction data, there are fields specifically for eBay auctions.  However, I don't know what anti-fraud stuff they do internally.

 

2- The customer service is somewhat integrated between the two companies.  Somebody who gets scammed on eBay will be talking to eBay and/or Paypal.  It gets complicated if you try to separate the two companies.

 

The worst-case scenario is if Ebay and Paypal start blaming the other company and sending customers to the other company's support system because both sides have to watch their profit and loss.  They will want the other company to shoulder their customer service costs.

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