In a continuation of the scuffle between activist investor Carl Icahn and eBay Inc. (EBAY - Free Report) , the former has accused CEO, John Donahoe of ignoring vital matters directly affecting shareholders’ interest and turning a blind eye to the overall corporate situation. Additionally, Icahn continued to push for the spin-off of its fast-growing digital payment unit, PayPal.
The activist shareholder, Icahn accused two eBay board members — VC Marc Andreesen and Scott Cook — of investing in companies that are direct competitors to eBay. Additionally, Cook has been blamed of having a board seat and financial stake in another software firm, Intuit (INTU - Free Report) .
In reply to Icahn’s accusations, the company said that its management team is completely transparent and PayPal, its payment arm, will continue to perform as its unit. Following the news, eBay shares rose 3.1% to $56.30.
Last month, Icahn proposed the spin-off of PayPal with a different management team, surmising that it would boost the progress of both the companies. However, management rejected the proposal saying that PayPal and eBay will benefit more by working together.
Management believes that PayPal is the company’s best-performing service and its fastest-growing unit. However, it also owes a lot of this to the online marketplace. eBay is largely responsible for the success of the online payment service and provides a strong financial base for PayPal’s growth.
Moreover, close to one-third of PayPal’s new accounts and half of its new mobile accounts come from the online marketplace. Therefore, eBay and PayPal can collectively generate the best value for shareholders.
eBay acquired PayPal in 2002 for $1.5 billion. It also invested resources to develop PayPal as a strong payments platform. Its efforts clearly paid off because PayPal is now the major growth driver and one of the most important reasons for investors’ confidence in the company. The growing preference for online shopping has also led to a proportionate increase in the popularity of this online payment service.
Thus, PayPal accounts for a large percentage of eBay’s total revenue. Additionally, it along with fulfillment services, enables eBay to provide a complete solution to retailers, whether brick-and-mortar or online.
This makes it an ally of traditional retailers instead of a competitor, further strengthening its position versus Amazon.com Inc. (AMZN - Free Report) , and improving its chances of picking up market share.
Currently, eBay holds a Zacks Rank #5 (Strong Sell). Some better-ranked stocks worth considering from the same sector include Autobytel Inc. (ABTL - Free Report) and Liberty Ventures (LVNTA - Free Report) , both carrying a Zacks Rank #2 (Buy).