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PayPal is stronger staying with eBay: EBay CEO John Donahoe

Thursday, 23 Jan 2014 | 10:36 AM ET
Ebay makes PayPal better: Donahoe
Thursday, 23 Jan 2014 | 9:14 AM ET
Commerce and payment are converging, and Carl Icahn is not considering eBay's synergies in suggesting that the company spin off PayPal, says eBay President and CEO John Donahoe.

EBay CEO John Donahoe says no way to Carl Icahn's call for it to spin off its online payment service PayPal, telling CNBC on Thursday the companies are better off together as sweeping changes transform the online commerce sector.

"What that argument is missing is the very strong synergies between the two businesses," Donahoe said on "Squawk on the Street." "It's noteworthy that there has not been anyone else who has created another PayPal since PayPal was created. And that's because commerce and payments are converging into one thing. A payments network needs a commerce network like eBay."

(Read more: PayPal challenger Stripe valued at $1.75 billion in funding deal)

On Wednesday, eBay announced that Icahn had taken a small stake in the online auction service and had nominated two directors to its board. Icahn wants eBay to spin off its PayPal business, an idea that eBay leadership rebuffed.

John Donahoe
David Paul Morris | Bloomberg | Getty Images
John Donahoe

EBay disclosed Icahn's stake as it reported fourth quarter earnings of 81 cents per share, beating estimates by a penny. Also on Wednesday, Icahn took to Twitter to urge Apple and its shareholders to pursue a stock buyback plan.

(Read more: EBay dismisses Icahn proposal to spin off PayPal)

Donahoe told CNBC that he spoke with Icahn over the phone about the proposal, but that PayPal and eBay remain strongly linked. As more online payment and commerce services converge into a more seamless experience, the growth of mobile shopping makes that trend even more important, he said.

For example, the growth of eBay's mobile auction service helped PayPal grow exponentially, he said. Donahoe said PayPal now processes about $27 billion in mobile payments.

"It's noteworthy that most of the large commerce companies are getting into payments, and some of the payment companies are getting into commerce," Donahoe said. "So eBay makes PayPal better. EBay helps accelerate PayPal's growth."

(Read more: Icahn: 'Ludicrous' Apple board won't raise buyback)

What's more, access to both eBay and PayPal's immense stores of data help the payment service generate better risk models, a big appeal with online users spread out across the globe. He called PayPal's ability to underwrite both sides of an international transaction the "secret sauce" of the business.

"Risk is data—big data," Donahoe said. "And eBay and PayPal together give us $200 billion of closed transaction data, which makes PayPal's risk models stronger."

EBay leadership authorized a $5 billion stock buyback plan on Wednesday. Donahoe said, citing the move as a commitment to shareholders. Despite lowered revenue forecasts at eBay, Donahoe said the online auction component of the business remains healthy and generates strong cash flow.

Donahoe would not say whether his board would consider the spinoff proposal under different circumstances, but said the company's directors routinely reassess their approach to generating shareholder value.


"I listen to shareholders all the time," Donahoe said.

—By CNBC's Jeff Morganteen. Follow him on Twitter at @jmorganteen and get the latest stories from "Squawk on the Street."

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