NEW YORK (TheStreet) -- Facebook (FB) has lured away PayPal head David Marcus from eBay (EBAY). The move leaves a big hole in eBay's organization and an even bigger question for investors on Stocktwits.com: is a PayPal spinoff now more or less likely?
$EBAY Ichan wants to spin of Pay Pal to unlock value. Head guy leaves, people could be missing the point on another reason Marcus left? Phil (@SwedeSkyview) Jun. 10 at 09:24 AM
Activist investor Carl Icahn, who owned 27.8 million eBay shares as of March 31, has pressured the company to spin off PayPal into a separate public company.
It's not difficult to understand his reasoning. PayPal is growing far faster than eBay. The volume of payments processed by PayPal ballooned 27% in the first three months of the year. Meanwhile, the value of goods sold on eBay grew 12%. PayPal's off-eBay business grew faster than its business on eBay's site, with payments volume expanding 32% and 15% respectively. PayPal is also extremely profitable, bringing in $1.8 billion in revenue during the prior quarter.
The Icahn vs. eBay management fight got ugly at times this year, with Icahn vehemently criticizing eBay CEO John Donahoe and board. EBay's team countered with arguments that eBay's business is fundamental to PayPal's growth -- it's the way the majority of shoppers pay for goods on the site -- and that Icahn, in essence, doesn't get technology.
Until today, it seemed eBay had won the case for keeping PayPal under the eBay umbrella. Icahn backed off his campaign in April saying that, while he still believes PayPal should be a standalone company, he would pursue his agenda with management, rather than via open letters to shareholders. Investors were largely disappointed by the news of eBay's seeming success in the matter. The stock dropped 3% the day Icahn dropped his public battle.
But Marcus' departure reopens the case for a PayPal spinoff and leaves investors with new questions central to PayPal's continued success. Did Marcus leave PayPal because eBay refused to separate the company? And, if so, does that mean PayPal will lose top talent if eBay stubbornly continues to hold onto it?
If PayPal is suffering under eBay's leadership and losing top talent, than Icahn certainly has more ammunition to argue for a spinoff.
eBay, of course, argues that Marcus simply wanted to leave because he's an "entrepreneur at heart." Marcus took the job at PayPal after selling his mobile payment company Zong to eBay about three years ago for $240 million. His new role, leading Facebook's messaging products, does seem more likely to foster that spirit more than running a largely established, multi-billion payments business at an older tech company.
Some investors certainly buy that argument.
But articles this year hint that eBay could be hindering PayPal's growth.
A Forbes cover story in March indicated that Marcus was annoyed, at times, with running PayPal as part of eBay. Though Marcus told Forbes he believed PayPal could dominate the retail world, he expressed frustration with trying to keep PayPal nimble within a much larger organization. Forbes quoted Marcus as saying: "It's really brutal. At large companies you always find someone with reasons not to do something -- the self-preservation thing is highly frustrating."
eBay fell 2.7% to a 52-week low after the news. Some of that fall, however, was likely continued reaction to Amazon (AMZN) launching a service allowing people to pay bills off Amazon with their Amazon login details. The "pay with Amazon" program taps into the payment information stored on Amazon's site to pay bills. Like PayPal, Amazon promises security and to "eliminate the hassle" of multiple accounts.
$EBAY 1. Facebook stole their paypal chief. 2. Amazon is embarking subscription payment service. 3. Icahn investigation.? Gregory (@bullfight) Jun. 9 at 05:56 PM
Still, many investors believe that eBay must back off to ensure PayPal can remain a payments juggernaut and retain entrepreneurial talent like Marcus. And that means a spinoff or some other action. Otherwise, investors may move their money to the tech companies where eBay's top talent has headed.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.