PayPal's debut market value tops eBay's as investors seek growth

[SAN FRANCISCO] PayPal Holdings will make its stock debut with a market value almost 1.4 times that of eBay as investors bet on bigger returns from the digital payments business than its former parent company struggling with slow growth.

PayPal starts trading Monday with a market capitalization of about US$46.6 billion, data compiled by Bloomberg show. After the spinoff, EBay's shrinks to roughly US$34 billion. Investors are viewing PayPal as a new growth option, while EBay's expansion decelerates amid increasing competition in e-commerce.

"Investors have been waiting to invest in PayPal for a long time, even before the split was announced," said Gil Luria, analyst at Wedbush Securities in Los Angeles. "We're finally at a point where you can only own PayPal with its market-leading position and growth rate." PayPal had 169 million users and processed US$1.1 billion in payments in the second quarter, with transaction volume up 27 per cent from a year earlier, the company said last week. The company's value is in its growth rate as online shopping booms and people's spending habits change.

eBay's marketplace becomes a value investment, with 157 million buyers who spent US$20.1 billion in the second quarter, down two per cent from a year earlier due largely to currency exchange rates. Even with its slowdown tied to a data breach and changes to Google's search engine last year, eBay is more profitable than PayPal.

"We need to see growth accelerate," said Kerry Rice, an analyst at Needham & Company, LLC in San Francisco. "However, I think it's going to take approximately 18 months to see a meaningful impact to improve traffic and search on EBay." eBay in September announced plans to spin off PayPal following pressure from activist investor Carl Icahn. eBay bought PayPal in 2002 to add a payments service to its marketplace. eBay sales accounted for 22 per cent of all PayPal transactions in the second quarter, down from 26 per cent a year earlier.

PayPal closed Friday at US$38.39, some 37 per cent higher than stand-alone eBay's $28, according to "when-issued" prices. When a large company splits up, stock markets allow trading of the pieces in advance to determine pricing and limit volatility. Those transactions only settle after the spin off is completed.

BLOOMBERG