WHEN: Today, Thursday, January 23rd
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with eBay President & CEO John Donahoe. Following is the link to the video on CNBC.com: http://video.cnbc.com/gallery/?video=3000238616.
All references must be sourced to CNBC.
DAVID FABER: EBAY SHARES ARE UP THIS MORNING AFTER THE COMPANY ANNOUNCED ITS EARNINGS RELEASE LAST NIGHT. AND OF COURSE, ALSO INCLUDED THE FACT THAT ACTIVIST INVESTOR CARL ICAHN HAS TAKEN WHAT WE ARE REPORTING, ROUGHLY A 1% STAKE IN THE COMPANY. ICAHN HAS NOMINATED TWO DIRECTORS TO EBAY'S BOARD. HE HAS ALSO FILED A NON-BINDING PROPOSAL URGING A SPINOFF OF PAYPAL FROM THE COMPANY. HOWEVER, EBAY SAYS NOT INTERESTED IN BREAKING UP ITS COMPANY. JOINING US NOW IN AN EXCLUSIVE INTERVIEW IS THE CEO OF EBAY JOHN DONAHOE. THANK YOU FOR COMING ACROSS COUNTRY TO TALK TO US. APPRECIATE IT.
JOHN DONAHOE: NICE TO BE HERE.
FABER: YOU MAY HAVE A FIGHT AHEAD FOR YOU. YOU'VE COME OUT BLAZING ALREADY. IN FACT, YOU WERE THE ONES WHO DISCLOSED MR. ICAHN'S POSITION, HIS NOMINATIONS TO THE BOARD AND HAVE SAID POINTEDLY WE ARE NOT BREAKING UP THIS COMPANY. WHY?
DONAHOE: WELL, I THINK THE PROOF'S IN THE PUDDING, DAVID. OUR COMPANY'S BETTER OFF TOGETHER. THERE'S AN ENORMOUS CHANGE GOING ON IN THE COMMERCE AND E-COMMERCE MARKET. AND EBAY AND PAYPAL TOGETHER HAS DELIVERED VERY STRONG RESULTS OVER THE LAST THREE YEARS. 20% REVENUE GROWTH. 15% EARNINGS GROWTH. 100% SHAREHOLDER APPRECIATION. AND WE BELIEVE THAT PAYPAL'S COMPETITIVE POSITION WILL BE STRONGER AS PART OF EBAY OVER THE NEXT PERIOD OF TIME AS WELL.
FABER: THERE ARE MANY PEOPLE WHO WOULD AGREE THAT PAYPAL IS A VERY STRONG PART OF YOUR COMPANY, BUT THEY WOULD ARGUE AND MR. ICAHN OF COURSE PERHAPS LEADING THE CHARGE AMONGST YOUR INVESTOR BASE, THAT IF YOU WERE TO SPIN IT OUT, IT WOULD GET A HIGHER MULTIPLE. IT WOULD NOT PERHAPS ENDANGER EBAY'S CORE MARKETPLACE BUSINESS BECAUSE YOU'D STILL BE ABLE TO USE PAYPAL OF COURSE. AND EVENTUALLY PAYPAL MIGHT EVEN GET SOLD DELIVERING EVEN MORE RETURNS TO YOUR SHAREHOLDERS. WHY NOT ENTERTAIN THAT NOTION?
DONAHOE: THE FIRST THING I'LL SAY IS THAT OUR BOARD AND I ROUTINELY ASSESS ALL OF OUR ALTERNATIVES. BUT WHAT THAT ARGUMENT'S MISSING IS THE VERY STRONG SYNERGIES BETWEEN THE TWO BUSINESSES. YOU KNOW, IT'S NOTEWORTHY 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. IT'S NOTEWORTHY THAT MOST OF THE LARGE COMMERCE COMPANIES ARE GETTING INTO PAYMENTS AND SOME OF THE PAYMENTS COMPANIES ARE GETTING INTO COMMERCE. SO, EBAY MAKES PAYPAL BETTER. EBAY HELPS ACCELERATE PAYPAL'S GROWTH. LET ME GIVE YOU A SPECIFIC EXAMPLE.
FABER: PLEASE.
DONAHOE: MOBILE IS THE MOST IMPORTANT PLATFORM SHIFT THAT HAS HAPPENED IN THE LAST DECADE. PAYPAL TODAY IS THE CLEAR LEADER IN MOBILE PAYMENTS VOLUME. 100% OF PAYPAL'S START IN MOBILE, STARTED WITH EBAY MOBILE. $600 MILLION OF MOBILE PAYMENTS VOLUME THREE YEARS AGO, 80% OF WHICH CAME FROM EBAY. EBAY CUSTOMERS. EBAY VOLUME. THAT'S ENABLED PAYPAL TO GET GOING IN MOBILE PAYMENTS WHERE TODAY $27 BILLION OF MOBILE PAYMENTS, A 45 TIMES INCREASE. CLEAR LEADERSHIP POSITION. STARTED ON EBAY. AND THEN EXPANDED OFF EBAY AND THAT'S BEEN THE REPEATED PATTERN WITH PAYPAL IN CROSS BORDER AND GLOBAL EXPANSION. START ON EBAY, EXPAND OFF EBAY. SO WE THINK PAYPAL'S COMPETITIVE POSITION IS ENHANCED BEING PART OF EBAY.
FABER: BUT WHY IS THAT GOING TO CONTINUE TO BE THE CASE IF WE CONSIDER THAT THIS WAS THE EARLY DAYS, THE INCUBATION IF YOU WILL, OF THIS NEW WAY OF PAYMENT BUT NOW IT'S MORE MATURE? CONSUMERS ARE CERTAINLY WELL AWARE OF IT. THEY ARE USING E-COMMERCE IN SO MANY DIFFERENT WAYS. OF COURSE MOBILE HAS BEEN ITS OWN HUGE GROWTH AREA. WHY IS THAT GOING TO CONTINUE TO BE THE CASE AND WILL IT CONTINUE TO BE THE CASE?
DONAHOE: SEE, WHAT'S INTERESTING IS WE SEE STRONGER SYNERGIES IN THE NEW BATTLEFIELDS. MOBILE, THAT'S NOT AN OLD, MATURE PHENOMENON. THAT IS A PHENOMENON THAT IS STILL ALIVE. GOING GLOBAL EXPANSION. WHEN PAYPAL ENTERS A MARKET LIKE RUSSIA OR BRAZIL, THEY START WITH A LARGE NUMBER OF EBAY CUSTOMERS WHICH THEN THEY BUILD ON TOP OF TO BUILD A STRONG DOMESTIC BUSINESS. MOVING OFFLINE, WE'RE MOVING OFFLINE TOGETHER, EBAY AND PAYPAL. THAT'S A MORE POWERFUL POSITION. SO, IN THE KEY AREAS OF INNOVATION, WE ACTUALLY SEE STRONG SYNERGIES AND I'VE SAID ALL THE WAY ALONG, IF AND WHEN SYNERGIES RUN THEIR COURSE, WE'LL BE OBJECTIVE JUST LIKE WE WERE WITH SKYPE. BUT FOR NOW --
FABER: BUT THERE MAY NOT HAVE BEEN ANY SYNERGIES WITH SKYPE AT ALL TO BEGIN WITH.
DONAHOE: WHAT I'M SAYING IS WHEN WE SEE PATHS THAT WE THINK WILL UNLOCK SHAREHOLDER VALUE, WE'LL PURSUE THEM, BUT FOR NOW WE THINK THE BEST PATH FOR SHAREHOLDER VALUE IS KEEPING THESE BUSINESSES TOGETHER BECAUSE OF THE STRONG SYNERGIES.
FABER: JIM?
JIM CRAMER: LET'S TALK ABOUT THAT. BECAUSE THERE HAVE BEEN A LOT OF COMPANIES THAT HAVE DONE QUITE WELL OF LATE BREAKING UP. AND I LOOK AT YOUR PAYPAL BUSINESS AND FRANKLY I COVET IT. I WANT IT. MASTERCARD $96 BILLION COMPANY, 1.2 BILLION USERS. VISA, WE ARE TALKING ABOUT A COMPANY – A GIGANTIC COMPANY -- $148 BILLION, 6.5% GROWTH, 2.5 BILLION USERS. I WOULD PREFER OWNING PAYPAL TO THOSE BECAUSE OF YOUR TREMENDOUS GROWTH. AND BECAUSE YOU ARE THE NEXT GENERATIONS' VISA AND MASTERCARD. UNFORTUNATELY I'VE GOT TO ALSO OWN THIS GROSS MERCHANDISE BUSINESS, BUT I'VE GOT A THIRD BUSINESS THAT I LIKE, THE LUCRATIVE MIDDLEMAN BUSINESS THAT AMAZON HAS TO BE WORRIED ABOUT LOSING BECAUSE THEY'RE COMPETING DIRECTLY. YOU DON'T IN YOUR WEB SERVICE BUSINESS. I SEE THREE COMPANIES HERE THAT ARE EASILY WORTH MORE THAN $70 BILLION AND I WANT THEM. JOHN, I WANT ALL THREE BECAUSE I THINK THEY COULD BE WORTH $150 BILLION.
DONAHOE: YOU KNOW, JIM, I AGREE. IT'S A VERY VALUABLE SET OF ASSETS, BUT THEY'RE STRONGER TOGETHER. WE SEE THAT DAY IN AND DAY OUT. LET'S JUST TAKE PAYMENTS. YOU TALKED ABOUT, YOU KNOW THE KEY PART OF PAYPAL SECRET SAUCE IS RISK, RIGHT? OUR ABILITY TO UNDERWRITE BOTH SIDES OF A TRANSACTION, TO MAKE CONSUMERS COMPLETELY SAFE WHEREVER THEY USE PAYPAL AROUND THE WORLD. RISK IS DATA. BIG DATA. AND EBAY, PAYPAL TOGETHER GIVES US $200 BILLION OF CLOSED TRANSACTION DATA WHICH MAKES PAYPAL'S RISK MODEL STRONGER. DAY IN AND DAY OUT WE SEE THE STRONG SYNERGIES AND WE'RE CAPITALIZING ON THOSE THAT MAKE BOTH THE COMPANY STRONGER AND PAYPAL STRONGER.
FABER: BUT TO JIM'S POINT, I JUST WONDER ABOUT, FIRST OF ALL, HE'S ARGUING, MAKING THAT ARGUMENT THAT YOU'LL HEAR FROM ANY NUMBER OF YOUR SHAREHOLDERS WHO DON'T AGREE WITH THE STRATEGY.
DONAHOE: ABSOLUTELY.
FABER: BUT SPECIFICALLY TO THE PAYPAL BUSINESS, ADOPTION BY OTHER USERS, DON'T YOU THINK MANY WOULD ARGUE THAT IT IN FACT WOULD BENEFIT FROM BEING INDEPENDENT BECAUSE THERE ARE THOSE E-COMMERCE-RELATED BUSINESSES THAT DON'T USE PAYPAL BECAUSE IT'S OWNED BY EBAY?
DONAHOE: I'M NOT SURE I AGREE WITH THE CHARACTERIZATION. I THINK THERE'S ONLY ONE COMPANY THAT WON'T INTEGRATE PAYPAL, ONE E-COMMERCE PROVIDER. PAYPAL HAS 70 OF THE TOP 100. 70% OF THE TOP 100 WHO HAVE INTEGRATED PAYPAL IN THE UNITED STATES, 65. SO THERE'S NOT BEEN – WE HAVE NOT SEEN ANY HESITATION OF RETAILERS AND MERCHANTS INTEGRATING PAYPAL BECAUSE IT'S PART OF EBAY.
CRAMER: BUT WHY, JOHN, I WAS OUT TO VISIT YOU IN DREAMFORCE – BY THE WAY, THANK YOU FOR YOUR FORTHCOMING INTERVIEW. MOST PEOPLE WOULDN'T BE SITTING HERE. AND THANK YOU, DAVID FOR GETTING JOHN AND HAVING THE GREAT RELATIONSHIP. BUT I LOOK AT IT, AND I SAY WHY HAS THE STOCK BEEN STUCK IN THE 50s. WHY DO PEOPLE SAY, YOU KNOW, DISAPPOINTING GUIDANCE? I MEAN, I COULD UNDERSTAND A FRUSTRATED EBAY SHAREHOLDER, JOHN.
DONAHOE: WELL, AN EBAY SHAREHOLDER HAS HAD A 300% RETURN OVER THE LAST FIVE YEARS. 100% RETURN OVER THE LAST THREE YEARS. AND WE BELIEVE WILL HAVE STRONG PROSPECTS GOING FORWARD. IN FACT, YESTERDAY WE ANNOUNCED A $5 BILLION SHARE BUYBACK AUTHORIZATION WHICH IS EVIDENCE OF THE BOARD'S AND MANAGEMENT'S CONFIDENCE IN OUR FUTURE ALTOGETHER.
FABER: ALTHOUGH SOME SHAREHOLDERS, JOHN, WOULD SAY AND YOU'VE GOT 8.8 BILLION NET OF CASH. I KNOW SOME OF THAT IS OVERSEAS. YOU'RE GENERATING AROUND $4 BILLION IN FREE CASH FLOW THIS YEAR. $5 BILLION IS NOTHING. YOU COULD RETURN A LOT MORE CAPITAL TO SHAREHOLDERS IF YOU WANTED TO.
DONAHOE: IF YOU LOOK UNDERNEATH THE FACTS OF THAT, DAVID, THE BENEFIT OF OUR COMPANY IS WE'RE TRULY GLOBAL. 60% OF OUR BUSINESSES OUTSIDE THE UNITED STATES. THAT ALSO MEANS A LARGE PORTION OF OUR CASH AND CASH FLOW IS OUTSIDE THE UNITED STATES, SO I THINK IF YOU LOOK AT OUR DOMESTIC CASH --
FABER: IT'S ABOUT $3.2 BILLION I BELIEVE.
DONAHOE: ANNOUNCING A $5 BILLION SHARE BUYBACK.
FABER: WELL THAT'S NOT ONE YEAR. I MEAN, YOU MAY DO A BILLION AND A HALF A YEAR, AGAIN, PEOPLE SAYING IT'S NOT ENOUGH. THOSE ARE THE ONES WHO MAY VERY WELL ALSO SAY THEY WOULD LIKE TO SEE THE COMPANY SEPARATED. BUT YOU FEEL COMFORTABLE WITH YOUR CAPITAL ALLOCATION.
DONAHOE: YES. WE THINK THIS CAPITAL ALLOCATION HAS BEEN INTELLIGENT. WE'RE IN A MARKET SECTOR WHERE WE INVEST ORGANICALLY IN OUR BUSINESS. WE DO MAKE ACQUISITIONS, WE'VE BEEN REALLY INQUISITIVE AND WE BELIEVE THAT A $5 BILLION RETURN TO SHAREHOLDERS OVER TIME COMMUNICATES OUR CONFIDENCE IN OUR FUTURE.
FABER: WHAT ABOUT THE CORE BUSINESS THAT BEING MARKETPLACE I SHOULD SAY WHICH IS STILL LARGER THAN PAYPAL? YESTERDAY'S GUIDANCE WAS LOWER THAN ANTICIPATED AT LEAST PREVIOUS GUIDANCE. WHAT ARE YOU SEEING IN YOUR BUSINESS AND WHY DID YOU LOWER GUIDANCE?
DONAHOE: WELL, WE THINK THE MARKETPLACE BUSINESS IS HAVING A STRONG MOMENTUM. WE GUIDED TO ROUGHLY 10% TO 12% GROWTH, DOUBLE DIGIT GROWTH GLOBALLY WITH STRONG MARGINS IN THE LOW 40s. SO, THIS IS A STRONG, HEALTHY BUSINESS THAT GENERATES STRONG CASH FLOWS WHICH PAYPAL BENEFITS FROM. AND IT'S A BUSINESS THAT'S EXPANDING GLOBALLY. IT'S A DIFFERENT BUSINESS TODAY AS YOU WELL KNOW THAN IT WAS THREE, FOUR YEARS AGO. THREE-QUARTERS FIXED PRICE, GROWING BOTH DOMESTICALLY AND INTERNATIONALLY. CROSS-BORDER TRADES STRONG IN THIS GLOBAL ECONOMY. THE MARKETPLACE BUSINESS – IT'S A NEW EBAY, MOBILE BUSINESS. $22 BILLION OF MOBILE VOLUME. SO MOBILE COMMERCE. EBAY'S A REAL LEADER AND WILL CONTINUE TO EXPAND GLOBALLY.
CARL QUINTANILLA: SO TO PUT A PERIOD ON ICAHN, YOU SAID THE BOARD HAS CONSIDERED THIS ALREADY. IS THERE A POINT AT WHICH THE BOARD WOULD RECONSIDER IT?
DONAHOE: WELL, THE BOARD – WE'VE GOT A GREAT BOARD TO BEGIN WITH. A WORLD CLASS BOARD. AND EVERY YEAR WE REASSESS OUR STRATEGIES. IT'S JUST GOOD BUSINESS. AND SO EVERY YEAR WE'LL LOOK AT WHAT STRATEGY DO WE THINK IS THE MOST SHAREHOLDER VALUE CREATING AND POSITIONS THE COMPANY BEST FOR THE FUTURE.
CRAMER: I DON'T UNDERSTAND WHY ARE GERMANY AND KOREA, THESE ARE AREAS -- GERMANY'S THE STRONGEST COUNTRY IN EUROPE. THESE REMAIN CHALLENGED. I SEE THAT EVERY QUARTER. WHY ARE THEY CHALLENGED?
DONAHOE: HERE'S THE FUNNY PART ABOUT THIS, JIM. WITH THE DIFFERENT PART OF GERMANY – GERMANY IS OUR SECOND LARGEST MARKET. WE HAVE 25% TO 30% OF THE E-COMMERCE MARKET. WE'RE HUGE. WHAT'S DIFFERENT IS PAYMENTS. IS PAYMENTS, PAYPAL HAS LESS HISTORY IN GERMANY BECAUSE THE WAY GERMANS HAVE HISTORICALLY PAID ON E-COMMERCE AND SO OUR ABILITY TO DRIVE GROWTH IN THE EBAY BUSINESS IS ALSO TIED TO PAYPAL PENETRATION ON EBAY. IRONICALLY, THIS IS A SYNERGY PAYPAL TO EBAY AND AS WE DRIVE UP PAYPAL'S PENETRATION, THAT ALLOWS US TO OFFER MONEY-BACK GUARANTEE FOR ALL EBAY USERS. AND THAT'S THE KEY NEXT STEP THAT WE NEED IN GERMANY THAT WE HAVE IN ALL THE OTHER MARKETS AROUND THE WORLD THAT HAVE PAYPAL.
CRAMER: MY LAST QUESTION, JUST QUICKLY. DEMOGRAPHICALLY DO YOU HAVE NUMBERS ON AGES OF PAYPAL VERSUS MASTERCARD, VISA? IT SEEMS MUCH YOUNGER.
DONAHOE: PAYPAL HAS A STRONG MOBILE FOLLOWING, $27 BILLION. A STRONG COMMERCE FOLLOWING. SO YES, I THINK WE HAVE – I HAVEN'T LOOKED AT THE STATS, BUT I KNOW OUR DEMOGRAPHIC – THE PAYPAL DEMOGRAPHIC IS QUITE STRONG.
FABER: JOHN, PART OF ICAHN'S MOVE HERE, INCLUDES A NON-BINDING SHAREHOLDER PROPOSAL, A PRECATORY, IN WHICH HE PUTS THIS UP TO A VOTE ESSENTIALLY IN YOUR PROXY. IF, IN FACT, MORE THAN 50% OF YOUR SHAREHOLDERS VOTE IN FAVOR OF A SPLIT OF PAYPAL FROM THE BUSINESS, WILL YOU LISTEN TO THOSE SHAREHOLDERS?
DONAHOE: WE LISTEN TO SHAREHOLDERS, DAVID, ALL THE TIME.
FABER: BUT IF IT'S MORE THAN 50%, EVEN THOUGH IT'S NON-BINDING, DOES IT PUT PRESSURE ON YOU TO SAY OKAY?
DONAHOE: YOU KNOW, WE'LL CONFRONT THAT SET OF FACTS WHEN WE GET IT. I THINK THE THING YOU WOULD SAY ABOUT OUR BOARD AND OUR MANAGEMENT TEAM IS WE'RE RATIONAL AND WE WANT TO DO WHAT'S BEST FOR THE COMPANY, WHAT'S BEST FOR CUSTOMERS AND WHAT'S BEST FOR SHAREHOLDERS. I THINK WE'VE DEMONSTRATED THAT OVER THE PAST FIVE YEARS.
FABER: YOU HAVE AND YOU'VE DELIVERED. ALTHOUGH THIS LAST YEAR HAS BEEN A MORE DIFFICULT ONE FOR THE STOCK PRICE. MR. ICAHN BEING IN YOUR SHARES IS NO PICNIC. YOU KNOW, HE CAN BE A DISTRACTION. YOU'VE MET WITH HIM, CORRECT?
DONAHOE: I TALK WITH HIM OVER THE PHONE.
FABER: YOU THINK YOU'RE GOING TO MEET WITH HIM AGAIN? YOU'RE IN NEW YORK NOW. YOU THINK YOU MIGHT GO AND TRY AND SAY, COME ON, CARL, GIVE US A BREAK?
DONAHOE: YOU KNOW, WHAT I DO IS I LISTEN TO SHAREHOLDERS ALL THE TIME. BUT THE MOST IMPORTANT THING I AND OUR MANAGEMENT TEAM NEED TO DO NOW IS TO BE CAPITALIZING ON THE OPPORTUNITIES. INNOVATING AND EXECUTING AND THAT'S THE MESSAGE I'M DELIVERING TO MY ORGANIZATION AND THAT'S WHAT WE'RE GOING TO STAY FOCUSED ON IN THE COMING WEEKS AND MONTHS.
FABER: JOHN, WE'LL BE FOLLOWING THINGS, OF COURSE, IN THOSE COMING WEEKS AND MONTHS. I KNOW YOU DON'T HAVE A DATE FOR THE ANNUAL MEETING, IS THAT CORRECT?
DONAHOE: THAT'S CORRECT.
FABER: BUT IT WILL BE SOMETIME, MOST LIKELY IN THE LATE SPRING.
DONAHOE: SOMETIME IN THE SPRING.
FABER: JOHN DONAHOE, THANK YOU FOR MAKING THE TRIP. THANKS FOR BEING HERE. APPRECIATE IT.
DONAHOE: THANK YOU, DAVID.
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