Yahoo's gain is probably eBay shareholders' pain. The Internet company has nabbed Scott Thompson, the head of eBay's PayPal division, as its new chief executive. That's good for Yahoo, but less so for eBay's owners. The auctioneer's payments business is a gem that could grow faster on its own. Mr. Thompson's walk suggests such a split isn't coming any time soon.
PayPal has grown rapidly and in the most recent quarter accounted for almost 40 per cent of eBay's revenue. But with more than 100 million regular users, further expansion will increasingly need to come from payments unrelated to eBay and even to the Internet. For example, PayPal is moving into services allowing people to use their phone numbers or swipe cards at terminals in brick-and-mortar stores. Retailers would surely be more receptive if PayPal were free of any connection to eBay, a potential rival for them.
Investors have a more concrete reason to clamour for a split, too. PayPal is set to produce about $2.2-billion (U.S.) in EBITDA this year, by analysts' estimates. Payments giant Visa's enterprise value is slightly more than 10 times its estimated 2012 EBITDA. PayPal probably deserves a premium because of its much faster growth. Put it on a 12 times multiple, and the division should be worth some $26-billion.
The rest of eBay should generate about $4-billion of EBITDA this year, and UBS estimates that's worth about $22.5-billion in enterprise value. Add eBay's net cash of about $1.5-billion, and the company's equity value ought to be around $50-billion. With a current market capitalization of $39-billion, eBay is trading at a more than 20 per cent discount to the value of its parts.
Logically, Mr. Thompson might have stuck around had the company been seriously considering a value-enhancing split. He would have had a chance to run his own show and have a big payday without taking a risk on the uncertainty and painful drama surrounding Yahoo.
Investors knocked nearly 4 per cent off eBay's value after Mr. Thompson's move was announced. Maybe they are concerned that eBay is losing a talented manager. But an explanation at least as likely is that they are disappointed that the company, which has hinted in the past that a split could make sense eventually, isn't in any hurry at all.