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Carl Icahn, the notorious activist investor, is now pushing for some big changes at online marketplace eBay (EBAY - Analyst Report). In a recent statement, eBay revealed that Icahn is looking for the comany to spin off its PayPal unit as a separate business in order to unlock the value in that segment.

Why PayPal?

Since being purchased by eBay more than a decade ago for just $1.5 billion, PayPal has pretty much become the engine for eBay’s growth, and the real reason to own shares of EBAY. The broad ‘payments’ division of eBay now nearly does as much revenue as the ‘marketplace’ division, and growth has been much stronger on the payments side as well.

And as more users embrace PayPal for a variety of transactions, it appears as though the growth potential here is still enormous. This is particularly true if PayPal’s ‘Here’ mobile payment system takes off, as this could further add to the PayPal network, and help the firm more effectively compete with those who have already made a name for themselves in this space, like Square.

What About eBay?

I think the move might unlock some value for shareholders, and now that PayPal is of decent size and has strong brand name recognition, it is doubtful that going it alone would impede the platform’s growth potential too much. If anything, an unleashed PayPal could see more interest from users who like the PayPal platform, but aren’t too big of fans of eBay.

Furthermore, eBay isn’t exactly dying, but it certainly isn’t the high growth tech enterprise that it used to be. The company has been lagging its internet commerce peers like Amazon (AMZN - Analyst Report) for quite some time, and analysts don’t seem to like eBay’s outlook too much either.

In fact, while Amazon currently has a Zacks Rank #2 (Buy), eBay is stuck in Zacks Rank #4 (Sell) territory. And with estimates universally lower (in our consensus) over the past 90 days, it is hard to see a quick turnaround in this struggling firm. For that reason, it might make some sense to jettison PayPal for the good of the shareholders.

Bottom Line

However, some have argued that there are significant ‘synergies’ between eBay and PayPal. Close to one-third of PayPal’s new accounts in Q4 came from eBay, while half of PayPal’s new mobile accounts came from the online marketplace.

So in many ways, eBay is now operating as a funnel for its growing payments business, which is close to being the flagship part of the company already. Given this relationship, I find it hard to believe that eBay would part ways with PayPal, and I doubt that this idea will really gain that much traction unless Icahn really digs in on this 'solution' to eBay’s overall sluggishness.

But what do you think?

Is a spin-off of PayPal a good idea and who does this move really benefit?

Let us know in the comments section below!

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