CNBC News Releases

CNBC Exclusive: CNBC Excerpts: eBay President & CEO John Donahoe Speaks with CNBC's David Faber Today

WHEN: Today, Tuesday, September 30th

WHERE: CNBC's Business Day Programming

Following are excerpts from the unofficial transcript of a CNBC EXCLUSIVE interview with eBay President & CEO John Donahoe. Excerpts of the interview will air throughout CNBC's Business Day programming today. Video from the interview is available on

All references must be sourced to CNBC.


DONAHOE: First of all, David, eBay and PayPal have been better together over the last 12 years and certainly over the last six. But what's changed is we've just come out of our annual strategic planning process, the same process that the board and I do every year, where we look forward. We look forward about how to best position the company over the next three to five years. And really, four things that changed came out of that. One is that as we look forward we see that payments and commerce landscape, competitive landscape, changing at an accelerating rate, which creates enormous opportunity for eBay and PayPal. Second, we now believe that eBay and PayPal are best positioned to compete going forward as independent companies because it gives the kind of strategic focus and flexibility that we think will be necessary in the coming period. Third, the synergies that I talked about back earlier in the year are still there, but they naturally decline over time. You know, when you look forward, eBay will be less than 15% of PayPal's business three years from now and we can achieve many of the benefits of the synergies through arms' length commercial relationships.

FABER: John, you know, it is funny that you list three reasons why because I was looking back at a conference call you had when you were at the beginning of a proxy fight, that ended your way, against Carl Icahn. And then you cited three reasons that the two companies were best together. You said first eBay accelerates PayPal's success. Second, eBay makes – eBay data makes PayPal smarter. And third, eBay funds PayPal's growth. I would assume those things are still true?

DONAHOE: Yeah, they're exactly the things that can be done now through commercial arms' length commercial arrangements. Let's just take each of them in turn. Fueling PayPal's growth. eBay today accounts for roughly between 25% and 30% of eBay's new users. That drops to less than 15% three years out. So that can be handled through a commercial relationship. Second, the data. The data's something we really dug into this summer about seeing if we could give the benefits of data sharing for PayPal's risk models and eBay's risk models through a commercial arrangement. And we became comfortable we could. And then third, in terms of fueling the capital structure of PayPal, we've looked at and we can create two independent capital structures that set each business up for success. So those synergies and those reasons that have been there for the last six years have been powerful, but as we look forward we prioritize the value of focus, strategic agility and the ability to move quickly in a changing competitive landscape as being more important.


DONAHOE: PayPal's got about 80% penetration on eBay today and we don't see that growing much in the coming years. It's sort of reached its natural limitation. And PayPal is the only payments network out there that's now much larger off of its home network than on. And so when you look forward, PayPal as an independent payments company can serve not just eBay, where it's got 80% penetration, but serve all of the commerce ecosystems. All of the merchants. And as PayPal gets larger and larger and as the payments landscape changes, the opportunity we see for PayPal is to serve all merchants, all payment ecosystems, all technology ecosystems.

FABER: So do you not believe that trend is no longer valid? In other words, commerce and payments don't belong together?

DONAHOE: Well, they're coming together on the various ecosystems. And so many of the commerce providers are trying to do payments within their own environment. We want PayPal to be the foundation on which they build those payments platforms. And that gets to the very strategy we're talking about, where if PayPal can help power payments, whether it's on a Skype or a Facebook or an Uber or an AirBnb, that's the opportunity PayPal uniquely has, and that's what the focus will be going forward.

FABER: And to what extent was PayPal prevented from doing that as a result of its being part of eBay?

DONAHOE: Well, independently PayPal will be able to move more quickly without worrying about if they're helping a competitor to eBay. They won't have to worry about that consideration. And I think they'll have the kind of strategic focus and agility that will ultimately allow PayPal to achieve its full potential, which is enormous.

FABER: Well I mean we've seen changes recently in payments, or at least announcements that seem to be auguring change, whether it's Apple pay or Visa doing some interesting things. The public offering of Alibaba and the huge e-commerce company that that is. Did that figure into the board's thinking at all?

DONAHOE: Well it is exactly the kind of change I was talking about earlier. When we look out three to five years we see the pace of competitive change in both commerce and payments accelerating. And the changes that have happened in the last month are just I think early indicators of what is to come. And so a more focused eBay and a more focused PayPal we believe will enable each business to compete more successfully in that environment.


DONAHOE: My ultimate responsibility is the same as it's been for the last ten years since I joined eBay, David, which is to do what's best for the overall company. And my most important responsibility going forward is having made this decision to separate, over the next year to ensure that we set each business up for success and that these operating agreements get done in the right way. In addition, we've got two great leadership teams. Devin Wenig will become CEO of eBay. And he's been the president of eBay for the last three years, doing a great job, and the right leader for that business going forward. And as you know, we're also announcing today that Dan Schulman will be joining PayPal, initially as the president over the next nine to 12 months until separation and then the CEO thereafter. And Dan brings wonderful qualifications. He has a technology background. He understands mobile. And he knows the payments industry. So I feel thrilled about both leaders as the right leaders for these businesses going forward. And I'm not going anywhere. I'll be CEO of this business throughout the next year until we separate and then I'll go on one or both of the boards and I'm deeply committed to seeing this thing all the way through.

FABER: Would you become potentially chairman on one of the boards?

DONAHOE: If that were appropriate, absolutely.

FABER: But you know, I've been doing this a long time. It's rare that I've seen a CEO, a young CEO, who's had success, voluntarily say, "I don't need to be CEO of the company," that is left behind or the company being spun off. Were there any disagreements between you and your board of directors that led you to believe or led you to think about this differently?

DONAHOE: Not at all. The board is 100% supportive of this course of action.

FABER: Are you 100% supportive of this course of action?

DONAHOE: Absolutely. I want to do what's right. I've gotten up every morning in the last 10 years with a burning desire to do whatever we can to set eBay and PayPal up for success. And that's what's behind this decision and that's what's behind my actions. And our board is 100% behind that.

FABER: What – after this year and you say goodbye to these two companies, do you see yourself perhaps becoming a CEO of another company?

DONAHOE: You know, David, I haven't given it any thought. I've focused 100% of my attention on getting this decision. I will focus 150% of my attention over the next 12 to 18 to 24 months to ensuring we land it in the right way and in the way that's best for both businesses, for their customers, for our employees and for our shareholders. And at that stage I'll worry about what's next.

FABER: But if I'm on your board, and I've watched you perform and create all of this value, aren't I saying, "John, don't leave. Don't go. Please, be the CEO of eBay." You know, can't we create an opportunity for you that will keep your management talent here?

DONAHOE: You know, David, coincidentally I had a good role model named Meg Whitman. And Meg was CEO of eBay and she said she was going to do it for a decade, ten years. And she stepped down eight years ago at the age of the early 50s and created opportunity for me, for which I'm enormously grateful. Coincidentally, next year will be my tenth year at eBay and I'll be creating opportunity for two great leaders to become CEO. So I think there's more than precedent around it. And I want to do what's right for the company and ultimately that will work out what's right for me.


DONAHOE: Back since 2008 we looked exhaustively at whether eBay, PayPal and Skype were better together or better apart. And as you know, in 2008 we made the decision Skype was better apart and we divested it. And at that time we thought eBay and PayPal were together. And we revisited that decision annually each year. And we've always known that the synergies were going to run their course and at some point it would probably make sense for eBay and PayPal to be separate. And that was still the case in 2013. We thought, "All right, the synergies have not yet run their course." What the proxy fight forced was me to come out and articulate our plan of record, our position at that moment. And that's what I did. And had to do that forcefully and clearly. But at the very same time we were just beginning our planning process in 2014 using the same process we've used all the way along. And if you go back you'll see that I said many times during the proxy that, "We will be open minded and objective and we will continue to evaluate all of our alternatives." And that's just what we've done with an eye toward the future. How do we best position each business to be competitive and to succeed into the future? And we believe this path, when you look forward, is the right path for eBay and PayPal.


DONAHOE: We're going to move forward in this separation over the next nine to 12 months, do it as quickly as we can with as much clarity going in. That's why I'm very pleased to have the CEO of each business clearly identified. We have a plan in place so that we can execute this and get through this in a way that strengthens each business instead of causing unnecessary distraction.

FABER: There still will be distraction. There has to be.

DONAHOE: Well, each business knows who their future leader's going to be. Each business knows what the competitive environment is. I think the recent changes in the competitive environment have brought intense focus from everybody across the company, because they see the opportunity. And they also see the challenges. And I think this move will accelerate the pace of change. The value of focus is non-trivial and I think this will increase the focus, the agility, the speed with which we operate and I think that's an important dimension in the competitive environment looking forward.


DONAHOE: E-commerce is still in its infancy. E-commerce even when you add mobile commerce in, is still only 15% of retail, and eBay's well positioned to capitalize on that future. And I think a more focused eBay will enable it to move more quickly. I think a more focused eBay and an independent eBay will enable eBay to take its own cash flow and not have it redeployed into another business, but rather to take its own cash flow and focus it on its own growth, on its own M&A if appropriate, or buying its own stock back. So I think this sets the eBay business up to succeed as well as setting the PayPal business up to succeed going forward.

FABER: When it comes to eBay though, I can see where PayPal can now go and say, "Alibaba, come. We are no longer apart of eBay. We want to be one of your payment engines." Amazon. What new opportunities, if any, does this open up for eBay?

DONAHOE: Well, perhaps one of the most important new opportunities it gives eBay is control over its own destiny. When you're inside a portfolio and you're the lower growth business and you have the kind of cash flows that eBay has, often those cash flows get redeployed to other businesses. This allows eBay to take its own strong cash flow, its own strong operating margin and reinvest back in their own growth. And I think will lead to more focus. Will lead to greater strategic agility and the ability to move more quickly and take control of their destiny.


DONAHOE: PayPal's got the ability to provide a payments platform that can be used on the web with merchants all over the world and on mobile devices. And those worlds have been relatively separate and distinct. With the way technology's evolving, with the tokenization guidelines coming in, with the mobile operators like Apple coming in, many of the technology ecosystems want to enable payments, but they don't necessarily want to get into the payments business themselves. And the opportunity, the unique opportunity we see for PayPal is to power, to enable payments on multiple technology ecosystems.

FABER: A couple of the developments you mentioned. I mean Apple and Visa, those happened very recently. The board seemingly made up its mind about this split prior to that, did it not?

DONAHOE: Sure. But they're only early indicators. They're just the early stages of the kinds of changes we think will be happening over the next three to five years. The way technology's evolving, the way mobile technology's evolving, we think you're going to continue to see profound changes in how consumers shop and how they pay.

FABER: Has Apple gotten a lead on you guys?

DONAHOE: Oh, I think we have a strong lead in payments. You know, we have 12 years in payments—

FABER: But on the technology side, if I can swipe my thumb in front of this thing and then just go like this and I know it's secure, more secure than that piece of plastic in my wallet?

DONAHOE: Well, PayPal did $27 billion in mobile payments volume last year. We've done over a billion mobile payments. So I think there's a lot of opportunity in the mobile payment space and PayPal's clearly investing heavily in that and out ahead.


DONAHOE: The consistent thing, David, has been from the beginning we've always tried to do whatever positions the company for success going forward. And I think we've demonstrated, back in 2008 when we divested Skype, an opened mindedness to do whatever it takes to set each business up to succeed and compete in the future. And so this decision is simply a continuation of that mindset. As we've continued our annual assessment, looking forward three to five years about how we can best position eBay and PayPal, we think the competitive position and the competitive environment of commerce and payments are going through accelerating change. That creates new sets of opportunities, and challenges, for both eBay and PayPal and that operating independently and separate will give eBay and PayPal focused strategic flexibility, and an ability to move quickly and decisively in this changing environment. And as the synergies run their course, as they become less and less important as a percentage of PayPal's total business, we think the commercial agreements can achieve those synergies.

FABER: The commercial agreements that eBay and PayPal will enter into, they're not going to be able to completely replace the beneficial parts of the relationship, are they?

DONAHOE: Well, I think they'll create appropriate incentives for eBay to create new customers for PayPal. For PayPal to provide its very best payment experience on eBay, which it's always done. And I think the data, there are strong incentives so that the data can be shared in a way that, particularly for risk purposes, allows the safest possible transaction on both eBay and with PayPal throughout the web.


DONAHOE: I think our shareholders have confidence that we will do the right thing. We will do the right thing for our businesses and we will do the right thing for shareholders over the short, medium and long-term. And so I genuinely believe this course of action is the best thing we can do for the company over the short, medium and long-term, as well as for our shareholders. And so I feel confident they'll support this action.

FABER: Carl Icahn's going to be saying, "See, they listened to me after all." He's going to claim victory. Is that going to tick you off?

DONAHOE: No. You know, I want to do what's right. And Carl said separation he thought was right back a year ago at the beginning of this, and that's the course we're taking. So I give credit for Carl providing an input and a perspective that we've ended up acting upon. It is not why we did, but he's a smart guy and we're happy to have him as a shareholder.

FABER: Yeah, and to those who would say, "Well, you wanted to avoid another proxy fight." Not necessarily with Icahn but it takes a lot out of you, these proxy fights, even when you do win. But to those who would say, "Well, they're just getting ahead of what might be the next proxy fight," what do you say?

DONAHOE: You know, I'm saying we come out of a very deliberate process to do what's right for the company over the medium- to long-term. Very consciously we didn't make a reactive decision in Q1 based on a short-term event like a proxy fight because we have a long history of being thoughtful and deliberate of how do we set this business up to succeed over the long-term. From the beginning, Pierre Omidyar, our founder, has a deep commitment to the long-term. Still owns 10% of the company. He's still chairman of the board. And this process has gone through what is the best way to help eBay and PayPal succeed over the long-term. I feel confident this is the right direction, and that's the reason we're pursuing it.

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