When eBay bought PayPal in 2002, the price tag was a measly $1.5 billion. Now, about 13 years later, PayPal is worth nearly $50 billion and has outgrown its former parent.
Monday marks the first day PayPal and eBay are trading as independent companies sinceon Friday. eBay stockholders got one share of the new PayPal for every eBay share they held. Compared to PayPal's $50 billion value, eBay is now trading around $34 billion, a substantially diminished stature from its $80 billion market capitalization just last week when it still had PayPal under its wing.
The divorce comes after the companies fought to stay together amid pressure from activist investor Carl Icahn to split to unlock PayPal's potential. The companies soon reversed course, saying both could sharpen their focuses as separate businesses.
Their market values say a lot about where investors see both companies going. Although PayPal has just started to log higher revenue than eBay's marketplace, that change was expected for a long while and PayPal's rapid growth paints a bright future for the digital-payments company. eBay, meanwhile, has considerable challenges going forward as it attempts to turn around its slow-growing online marketplace, now without PayPal helping prop it up. Also, while PayPal has been bulking up to expand its services -- acquiring companies including, Braintree and Paydiant -- eBay has slimmed down, agreeing to sell off its enterprise unit for $925 million last week as it narrows its mission on its marketplace.
Signifying eBay's weaker position without PayPal, all three major credit ratings agencies -- Standard & Poor's, Fitch and Moody's -- downgraded eBay's debt rating Monday.
For consumers, the split may provide more options, such as eBay eventually offering new payment methods on its Internet store. PayPal users could also utilize their accounts in new places -- potentially with e-commerce giants Amazon or Alibaba, which PayPal hadn't partnered with before because they are both major competitors of eBay. To prevent any drastic changes amid the split, an operating agreement will keep PayPal the primary payment option on eBay.com for the next five years.
However, if eBay's tighter focus on its marketplace doesn't succeed, it could result in Amazon -- already the top e-commerce company by revenue -- gaining even more market share, which in turn could weaken consumers' choices and raise prices. Still, eBay's stock may continue to hold value, as the company has faced persistent rumors that Alibaba could one day acquire the now less-expensive company so it can expand into the US. PayPal faces different kinds of challenges, as tech giants Apple and Google work to expand in its space.
PayPal shares, under the, traded at $40.54 midday Monday, while eBay shares traded at $28.33.