Ebay (EBAY) clearly has a lot of potential in its PayPal arm. As of Q4 eBay earnings, the Payments division led by PayPal tallied almost $1.7 billion in revenue — just shy of the $1.88 billion recorded by the core Marketplaces division.
The continued growth of PayPal has led to a lot of spinoff talk during the past year or so. And the fact that PayPal is now just as important to eBay as its e-commerce and auction biz has added fuel to the fire.
So it’s no surprise that activist investor Carl Icahn currently has a roughly $600 million stake in EBAY stock, worth about 0.82% of the company, and is pushing for a PayPal spinoff to unlock shareholder value.
But is a PayPal spinoff a good idea?
Well, PayPal co-founder and iconic entrepreneur Elon Musk seems to think so. Here’s what he said in a recent Forbes cover story:
“It doesn’t make sense that a global payment system is a subsidiary of an auction website. It’s as if Target owned Visa or something.” PayPal, he adds, “will get cut to pieces by Amazon Payments, or by others like Apple and by startups if it continues to be part of eBay.”
Musk currently is spending his time running some very different businesses right now — he’s CEO of electric vehicle manufacturer Tesla (TSLA) and private space flight company SpaceX, and chairman of solar installation and services company Solar City (SCTY).
But Wall Street and Silicon Valley both seem to greatly respect the ideas of Elon Musk, even slightly crazy ones like his “Hyperloop.”
It’s easy to be skeptical of Carl Icahn. He has been agitating for massive stock buybacks at Apple lately, and now that his efforts have recently ended, it seems like the PayPal spinoff might be his next big project to work on to unlock shareholder value — value that could be decidedly short-term and in his interest, but not in the long-term interest of the company.
But Elon Musk made his first big payday when PayPal was bought out by eBay for $1.5 billion, so he knows the business intimately. And as he has shown with Tesla and SpaceX, he is not in the business of running a company into the ground just for the sake of short-term profit. Musk truly is a visionary who thinks big about things like space travel, green energy and mobile payments.
So say what you want about Carl Icahn and his musings about a PayPal spinoff.
To me, the fact that start-up icon Elon Musk believes it will help the company grow is the biggest reason eBay stock holders should entertain the idea of a PayPal spinoff.
He’s interested in growth instead of a quick pop to EBAY stock… but it just so happens shareholders will get paid that way, too, if the strategic move pays off.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.