eBay (EBAY +0.69%) has recently reported solid financial performance for the fourth quarter of 2013. In addition, activist investor Carl Icahn has taken a position in the company and is pushing hard for eBay to spin off its high-growth PayPal segment. Should you place a bid for eBay?
The numbers
Revenues during the fourth quarter of 2013 came in at $4.5 billion, a 13% increase versus the fourth quarter of 2012. Non-GAAP earnings per share grew by 16%, to $0.81, while GAAP net income per share was $0.65, a 14% increase versus the same quarter in the prior year.
The company is performing strongly from an operational point of view: enabled commerce volume increased 22% in the the quarter, to $61 billion. On a full-year basis, eBay reported an increase of 21% in enabled commerce, to $212 billion.
PayPal is firing on all cylinders, the payments platform produced a 19% increase in revenue in both the quarter and the full year. Total net payments grew by 25%, with 3 billion transactions generating $180 billion in net payment volume for the year. PayPal gained 5.2 million active registered accounts in the quarter, and ended the period with a whopping 143 million accounts around the world.
Marketplaces gross merchandise volume (GMV), excluding vehicles, grew 13% in both the fourth quarter and full year, totaling 76.5 billion in 2013. Marketplaces gained 4.6 million active users in the quarter, and ended the year with 128 million active users. During the fourth quarter, marketplaces saw its revenue rise by 14% in the U.S, and 12% in international markets.
eBay is performing strongly in the key area of mobile: Mobile users represented 40% of eBay's 36 million new users and accounts in 2013, generating $35 billion in enabled commerce volume, an 88% annual increase. PayPal produced $27 billion in total mobile payment volume, while Marketplaces generated $22 billion in mobile commerce volume during the year.
All in all, it was a strong quarter for eBay. PayPal is a major growth driver for the company, and Marketplaces is still generating healthy performance, even if it pales in comparison to PayPal´s explosive growth rates. eBay seems to be adapting successfully to the mobile revolution, so the company is in a good position to continue generating solid results for investors in the middle term.
Stronger together, at least for now
Renowned activist investor Carl Icahn is pushing energetically for eBay to split PayPal via a spin-off to unlock shareholder value. Mr. Icahn may be right from a financial engineering point of view: PayPal is a big growth engine for eBay, and it could deserve a big valuation multiple if there is a spin-off. Investors in eBay could see the value of their holdings increase if the company decides to make such a move.
On the other hand, this is not the first time the possibility of a PayPal spin-off comes up, and CEO John Donahoe has solid reasons to believe that it's not the best thing to do at this stage.
Being a part of eBay provides access to a big and global customer base for PayPal, and it also allows the payments platform to leverage eBay's technology, data, and relationships with different players in the industry.
Besides, digital payments is an exciting growth area that is attracting different well-funded competitors in the search for opportunities. By staying with eBay, PayPal gets easier access to low-cost capital to invest in areas like research and development, and also to make acquisitions like the recent purchase of mobile payments gateway Braintree for $800 million.
Deals of this type allow PayPal to consolidate its competitive position in the industry, not only by incorporating valuable talent and technologies to its own platform, but also by taking those resources away from competitors.
A PayPal spin-off is not a crazy possibility; in fact, it would not be a big surprise if it happened sometime down the road. However, both eBay and PayPal are stronger together; there is an intense land grab going on in mobile payments, and PayPal needs all the resources it can get, not only financial, but also technological and commercial.
Bottom line
eBay is reporting strong performance overall. PayPal is generating remarkable growth rates and becoming an increasingly bigger part of the company, as it now represents around 40% of eBay's total sales. As for Marketplaces, it's not growing as fast as PayPal, but it's still generating solid performance. eBay looks like a sound addition to your online shopping cart.
