Published March 05, 2014
EBay (EBAY) chief executive John Donahoe told FOX Business’ Maria Bartiromo Wednesday keeping eBay and PayPal together makes sense as the payment and e-commerce segments converge.
“We believe eBay and PayPal together make each more successful and drive greater growth,” he said in an interview on Opening Bell.
"We see that time and time again where PayPal, in new key areas, gets started on eBay, which then allows it to grow faster off of eBay."
He added that the company will "act rationally" "if and when" it thinks the businesses are better off separate. However, for now, with innovation moving so fast, eBay believes the businesses are "stronger together."
Donahoe said there are “specific synergies" between the two businesses, including their mobile technologies and their treasure trove of combined data that enables the two to improve services.
“The best way to drive shareholder value in the Internet sector is growth – innovation leads to growth and so we’re investing in key innovation areas like mobile,” Donahoe said.
For example, Donahoe said PayPal has $210 billion worth of closed transaction data. He said that can be leveraged for risk management purposes, securing transactions and learning more about what customers want.
"The secret sauce of PayPal is its risk management capabilities," he said. "Anyone who knows risk management knows more data is better."
The chief executive pointed to the company’s 2013 buyout of Brain Tree as a way the company has been able to wedge itself into the mobile market. Donahoe told Bartiromo that Brain Tree, which PayPal bought for $800 million in September, will now be the mobile payments leader in many new apps, such as taxi reservation service Uber and lodging startup Airbnb.
“We’ll now be the mobile payments leader,” he said.
Donahoe explained that “if you are on your mobile phone, can order ahead using your PayPal mobile app, pay, and then you avoid the line, (then) you're going to see a lot more examples where we will be using our mobile devices to shop and pay in the physical world.”
At the same time, Donahoe, is pushing hard into emerging markets. He said Internet use is likely to double, with 80% of new users coming from the so-called BRIC countries (Brazil, Russia, India and China) as well as other emerging markets.
“We’re investing heavily as a company in Russia and Brazil and India to go to where the new future customers are going to be and make sure they are going to be able to trade on two globally-respected brands,” Donahoe said.
“Our focus is on driving future growth that will drive future value for shareholders and the company.”
Still, Donahoe didn’t rule out the chance of an eventual split between eBay and PayPal.
“It's relatively simple, it's if and when we felt like either of the two businesses would be better off separately than they were together, we'd pursue that, much like we did with Skype,” he said.
“So there's no close-minded -- it's not like we have 100 years of conglomerate history here or some sort of holding company identity.”
Donahoe v. Icahn
The eBay CEO’s remarks come amid an escalating spat between the Web giant and activist investor Carl Icahn. The billionaire investor has attacked the company’s management, calling for long-time eBay directors Marc Andreessen and Scott Cook to step down. The two parties have exchanged five public rebuttal letters in just the last several days.
Icahn has also chastised the company for its handling of its 2009 Skype sale and demanded an inspection of eBay’s purchase records. The marketplace sold the online telephone and video service to an investor group that included Andreessen’s firm in a move that valued it at $2.75 billion. Just years later, Skype was sold to Microsoft (MSFT) for $8.5 billion.
In response to Icahn’s criticisms, Donahoe said eBay got the “highest value at the time” for the business, and that Andreessen recused himself throughout the Skype process despite Icahn’s criticisms that there were conflicts of interest that led to a mishandling of the deal.
When Bartiromo asked whether Donohue recognized there could be a potential conflict with Andreessen and other board members, he said “of course,” adding that the company addresses it by practicing good governance.
“Conflicts will arise, that’s true in technology, that’s true out of technology,” he said. “And the simple practice is, if a potential conflict arises, that member recuses himself.”
Donahoe said Skype had two bidders and sold it to the “highest bidder at the time.” He said the company looked at “all options and alternatives” for the business, including a potential initial public offering.
Donahoe also told Bartiromo that the recent war of words has not impacted the business “much at all.”
So far this year, eBay’s shares have performed strongly, rallying just south of 8%. That compares with a paltry 1.5% advance on the broad S&P 500.
“Our focus is doing what we want and what the other large shareholders want us to do, which is staying focused on innovating and executing in the market -- that’s the best way to drive shareholder value. That’s what I’m doing, that’s what we’re doing,” Donahoe said.