eBay (NASDAQ: EBAY ) shares have fallen 17% in the last three months behind a slew of news that could cause fundamental headwinds for the company. However, news of David Marcus leaving as the PayPal chief to join Facebook (NASDAQ: FB ) could be the biggest blow yet.
The importance of eBay
PayPal is eBay's quintessential bread and butter, producing the company's growth and supporting most of its valuation. Several months ago, Carl Icahn lobbied for a Marketplace/PayPal split, saying two separate companies would unlock more value for shareholders.
In an article entitled, "Is a PayPal Split Best For eBay?" we tackled the idea of unlocking more value by splitting PayPal, and concluded that PayPal alone could be worth nearly the entire valuation of eBay. The reason lies in the fact that it's large, growing, and highly profitable.
Specifically, PayPal generated more than $6.6 billion in revenue last year, grew nearly 20% year over year, and was responsible for most of the company's $2.8 billion in profit. Therefore, it's an important business for eBay, and Facebook is banging on its door.
Facebook shows an interest
For the last few months, Facebook rumors have spread regarding a payment-processing service of sorts. In fact, some rumors speculate that Facebook may be looking at becoming a full-blown regulated bank, albeit with a social media twist. In fact, Facebook even applied for a license to launch an electronic money service in Ireland, which would allow users to store money, pay bills, and exchange currency on the platform. Currently, PayPal is the largest payment system in the world, but because of Facebook's sheer size of 1.3 billion users, this market-leading presence could fall rapidly.
With all things considered, talks of Facebook's financial services future have regressed in recent weeks, but on Tuesday, news hit that PayPal chief David Marcus is leaving the company to join Facebook. By now, most are aware of this news, but are uncertain about the long-term implications.
For example, Facebook announced Marcus as the head of its messaging products business, excluding WhatsApp. Therefore, if you remove WhatsApp from the equation, Marcus' segment appears relatively small, accounting for 200 million users.
Where does this leave Marcus? There are two possible answers to this question: First, Jim Cramer calls him "Mr. Monetization," and it's possible that Facebook is finally ready to monetize its 200 million messaging users, perhaps using Marcus to accomplish this feat without sacrificing user experience.
The second is a bit more speculative, but highly possible, and that is to build a payment-processing business through messaging, perhaps where users can message certain retailers with an order, transfer money, or something to that degree.
While this sounds foolish, or maybe simplistic, it would also be innovating and would fit with WhatsApp in the fact that most users are outside the U.S. Hence, such a service could give Facebook easy access to its 1.3 billion global users.
It's hard to believe that Marcus would leave PayPal to focus on messaging alone, and it would be foolish (small f) to assume his new job won't play a huge role in Facebook's payment processing initiatives. eBay didn't just lose an executive, but rather someone who understands the payments business well, and whose accumulated knowledge may lead to the waking of a sleeping giant in Facebook.
Moreover, considering that eBay created over $6.6 billion in revenue with 143 million total users, how much can Facebook earn with nearly 10 times that number? The answer is scary to ponder if you're an eBay investor. However, if you're long on Facebook, then the answer could lead to much higher share prices and significantly faster growth.
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