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Icahn Cashes Out of eBay: Is He Increasing Stake in PayPal?

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According to a quarterly filing with the Securities and Exchange Commission (SEC) released on Monday, activist investor Carl Icahn does not own any stock in the e-Commerce company, eBay Inc.EBAY .

Before the spin-off, in Jun 2015, Icahn held 46.3 million shares in eBay, worth approximately $2.8 billion. However, the recent SEC filing revealed that he has sold his entire stake of 46.3 million shares in eBay and increased the stake in PayPal PYPL to about $1.65 billion or 3.8%.

The filing also revealed that Icahn had 1.36 million shares in American International Group Inc. during the third quarter. Not only this, recently the investor increased his stakes in Apple AAPL , Hewlett-Packard and Microsoft MSFT .

Icahn & eBay-PayPal Spin-off

Early last year, Icahn had advised the giant online marketplace to spin off its digital payment arm, PayPal, through an Initial Public Offering under a different management team.

Per Icahn, the combined company lowered the individual market value of both PayPal and eBay. According to him, the spin-off would increase the equity holder's base and help both the companies to remain competitive over the long run. He also suggested that the two companies should have separate management teams, thus eliminating the scope for any disagreement.

eBay turned down his proposal on the grounds that neither eBay nor PayPal would benefit if Icahn's demands were met. In fact, it argued that in combination the two could generate synergies for the maximum benefit of shareholders.

However, later in September, eBay took Icahn's advice and spun off PayPal.

Thus, Icahn got what he wanted - eBay and PayPal were officially separated in Jul 2015 and he gained board representation in the latter.

Strong Numbers

After the spin-off, PayPal posted solid third-quarter earnings of 26 cents which surpassed the Zacks Consensus Estimate of 24 cents. Also, revenues of $2.3 billion beat our estimate of $2.265 billion.

PayPal's net total payment volume (TPV) grew 27% without the impact of currency translation. The company increased its market share with the customer base increasing to 173 million active customers.

The company has a long-term expected earnings growth rate of 17.5%, while eBay's expected growth rate is 7.10%.

Therefore, PayPal could be an interesting choice for investors. Not only does it have decent short-term momentum, but is also seeing solid activity on the estimate revisions front.

Over the past 30 days, 4 estimates have been revised up for 2015 and 2016. The trend has been pretty favorable too, with estimates increasing from $1.03 a share over the same time frame to $1.04, up almost 1%.

Bottom Line

PayPal Holdings, Inc. is a technology platform company. The company offers online payment solutions allowing customers to receive and make payments pay, withdraw funds from their bank accounts and hold balances in their PayPal accounts in various currencies. Its payment platform includes PayPal, PayPal Credit, Venmo and Braintree products.

Post the split, PayPal is focusing on its core capabilities and operate with greater flexibility for success in the digital payments space. It is able to focus on positioning itself as a "full-service" payments associate for consumers and merchants, managing mobile transactions, credit purchases and customer loyalty rewards programs.

PayPal is already gearing up to sustain itself in the fast growing digital payment space. The company has also been acquiring smaller companies to open up newer growth avenues. Its foray into mobile payments with the Braintree acquisition and its One Touch system reflects the same. In fact, it recently acquired Xoom Corporation, a service for international money transfers, which will enable it to sell international transfers to its U.S. customer base of nearly 68 million by cross-selling Xoom's services. It will also accelerate the expansion of PayPal services into the overseas money transfer market.

The current buoyancy around the stock does not guarantee similar results, going forward. The fact that competition for payment platforms continues to intensify, PayPal needs to tap every opportunity to expand its business.

Nevertheless, PayPal is definitely gearing up to make a mark for itself in the fast growing digital payment space. The company currently has a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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