This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

eBay Needs PayPal to Fight Amazon

NEW YORK (TheStreet) -- Forrester Research analyst Sucharita Mulpuru added her name to a growing number of eBay (EBAY) supporters as the e-commerce company defends its strategy over a proposal from billionaire activist investor Carl Icahn to split off a 20% stake in its PayPal division. Mulpuru said e-commerce needs a "united eBay," indicating Icahn's battle over PayPal could have large ramifications for online retail.

Mulpuru's argument is compelling because it both categorically states that eBay's control of PayPal does provide a benefit to the company's shareholders, and makes the added point that PayPal is central to eBay's competition against Amazon (AMZN), the leader in online retail.

With PayPal, eBay is able to defend itself against Amazon, while providing smaller e-commerce operations the ability to compete in an ultra-competitive mobile marketplace, Mulpuru argues.

The analyst also states that separating PayPal from eBay could leave both companies worse off and less able to compete in their respective payments and e-commerce marketplaces.

"For those of us in the eCommerce industry, there was largely a sense of head-scratching and general befuddlement as to why Mr. Icahn was targeting eBay and PayPal in the first place. Everyone in our industry knows that eBay's purchase of PayPal back in 2002 is largely regarded as a categorical homerun and a textbook example of synergy executed right," Mulpuru wrote on Thursday.

The synergies are simple to explain.

One of Amazon's big comparative advantages is one-click buying for desktop and mobile users. PayPal provides eBay and its partners with a similarly frictionless buying process.

Meanwhile, eBay remains PayPal's biggest partner, allowing the payments platform to enter new markets and product lines. As eBay has argued, the company's stable, cash generating Marketplaces business provides investment capital to PayPal and de-risks expansion investments.

That's basically Mulpuru's argument to eBay shareholders. PayPal is crucial to eBay's success and eBay is crucial to PayPal's success. Icahn, for his part, conceded earlier in March there was some synergy between the two divisions, however, he said a partial spinoff would lay bare all synergies and any potential dis-synergies, which he believes abound.

Mulpuru also makes an interesting argument as to why a strong eBay that controls PayPal is important not just to shareholders, but all of e-commerce. "[The] US has an equally vested interest in keeping these two businesses together as the long-term impact on online retailers of a separate PayPal would be disastrous," Mulpuru writes, citing three reasons.

First off, eBay needs PayPal to defend itself against Amazon. Mulpuru argues Amazon is a break-even business model that is taking share from just about every retailer by way of underpricing competitors and aggregating third party channels. By contrast, eBay provides a solution against Amazon.

Merchants can use eBay's Marketplace, its Payments division or its Enterprise division to reach a greater number of customers or more easily capture transactions. eBay sees itself as an end-to-end solution for retailers that gives them low-cost access to an e-commerce platform of Amazon's scale. "eBay provides a very viable, effective and non-competitive channel," Mulpuru writes.

Secondly, eBay is increasingly trying to position itself as a retail solution, and not a retailer like Amazon. One of eBay's biggest solution involves mobile transactions and payments. PayPal with its stored billing, shipping and payment details closely resembles the frictionless shopping that drives many transactions on Amazon.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,106.70 +29.83 0.17%
S&P 500 2,000.02 +2.10 0.11%
NASDAQ 4,570.6370 +13.29 0.29%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs