Cramer: PayPal—Your favorite friend with benefits?
While Jim Cramer is a fan of consolidation when it comes to industries like the airlines, he's a huge fan of spin-offs—especially when it comes to eBay. The more the merrier!
Back in September, eBay announced that it would be breaking itself up by spinning off its fast-growing PayPal division into a separate company. Though the exact date of the spin-off has not yet been released, eBay said it expected it to occur within the third quarter.
So, in preparation for eBay's big spin-off, Cramer wanted to dive in and prepare investors for action.
"Even though I am not at all enthusiastic about eBay's slow-growing core online marketplace business, I adore PayPal's online payments business, and I think it will absolutely be worth owning once it is spun off as an independent company," the "Mad Money" host said. (Tweet This)
Right now, Cramer views PayPal as stuck under the same roof with eBay. They don't really belong together, he says, as eBay's slow growth is holding PayPal back from higher valuations and faster growth.
Noted activist Carl Icahn was already all over this idea when he engaged in a nasty proxy fight with eBay to spin off PayPal last year. Management ultimately was able to quiet him by giving him a board seat, and it seemed the spin-off wouldn't happen.
But then all of a sudden eBay's core business went downhill rapidly, and in September management was willing to admit Icahn was right when it announced the breakup.
The breakup makes total sense to Cramer when he looked at the numbers, too. Revenue growth for PayPal and eBay's core marketplace business in the past three years revealed that PayPal has been able to sustain growth in the high-teens, while eBay has slowed.
Basically, PayPal is fast growing and lucrative, and is buried underneath an ailing eBay.
Right now eBay sells at approximately 17-times next year's earnings estimates. That is about the average for stocks on the . However, Cramer would not be surprised to see it run even higher once PayPal is on its own.
"Even though I'm not much of an eBay fan, I can certainly make the case that the stock could run going into the PayPal IPO, and I definitely want you to be ready to get a piece of PayPal itself, as long as the valuation isn't too crazy," Cramer said.
So what will the new PayPal look like?
Former American Express executive Dan Schulman is slated to take over as PayPal CEO. Cramer thinks he is exactly the kind of person needed for the job, especially as PayPal will be competing with Apple Pay.
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And even though it is being spun off, the company will still have an operating agreement with eBay to process at least 80 percent of total payments within the next five years. Heck, remember what a huge deal it was when MasterCard took over Costco's business from American Express? Ebay's payment business is way bigger.
"I can't wait for eBay to spin off PayPal. I believe it will be terrific as an independent company, and I bet its stock will become a core holding for tons of money managers after the IPO." (Tweet This)
So as long as there is a reasonable valuation for it, then this is one juicy IPO that could reward your portfolio handsomely.
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