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The board of directors of eBay Inc. is “unified” in opposing a proposal from famed activist investor Carl Icahn that the company spin off its PayPal Inc. unit, eBay chief executive John Donahoe told analysts Wednesday afternoon.
Calling the proposed separation a “distraction” coming just as eBay is trying to execute a critical expansion in worldwide commerce both online and offline, Donahoe said both eBay and PayPal benefit from their corporate ties. The online auction giant acquired PayPal in 2002. “From the beginning, PayPal has benefited from signing up eBay customers at zero acquisition cost,” he said during eBay’s fourth-quarter earnings call.
In the developing market for mobile payments, Donahoe pointed out what he sees as eBay’s critical contribution to PayPal’s growth. PayPal generated $27 billion in mobile volume last year, eBay disclosed Wednesday, with just over half of its fourth-quarter volume of $8.8 billion coming from eBay.
“I spoke to [Icahn] last week to hear his views,” Donahoe said. “Our board will consider his views in the ordinary course of business. But we believe the best interests of the company, our shareholders, and our customers are best served by keeping eBay and PayPal together. Our board is unified on this.”
Donahoe did say eBay’s board has approved a $5 billion share-buyback authorization to help support the company’s stock price as needed.
The company disclosed earlier Wednesday that Icahn, whose reputation as a so-called corporate raider dates back to the 1980s, nominated two people working for him to be on eBay’s board and submitted a nonbinding proposal to spin off PayPal as a separate company. Icahn disclosed he has a 0.82% stake in eBay.
In other remarks, Donahoe told the analysts that PayPal’s effort to sign up physical merchants is moving slower than expected, though he said this is also true for the processor’s competitors. “Offline is taking longer to materialize [than expected] for the whole digital industry,” he said. “We’ll prove out our investments in smaller pockets and then expand from there,” he added without going into detail.
PayPal’s expansion into brick-and-mortar payments, which relies on mobile devices as well as a PayPal card, began two years ago with a handful of Home Depot stores. It has since signed agreements with more chains along with a number of payment processors, though one of the largest processors, First Data Corp., has refused to support PayPal at merchants it serves.
PayPal’s 2013 mobile volume represented a near doubling from the $14 billion the company recorded in 2012 and was 45 times the volume posted in 2010. Some 17% of PayPal’s fourth-quarter volume overall came from mobile devices. “Mobile exceeded our expectations,” Donahoe said.
For the fourth quarter, PayPal’s global active account base reached 142.6 million, up 16% from the same quarter in 2012. Dollar volume hit $52 billion, a robust 49% increase, on a 22% jump in transactions to 846.1 million. But the processor’s transaction margin shrank to 63.5% from 64.7% at the end of 2012.
For Bill Me Later, the online transactional credit provider eBay acquired in 2008 and paired with PayPal, volume reached $1.31 billion, up 27%. But chargeoffs climbed fully 100 basis points to 6.3%.
