Asking the wrong question at eBay
Bloomberg News reported earlier in the week that eBay (EBAY) finance chief Bob Swan was asked at a CSFB technology conference whether eBay would sell Skype, the computer phone calling service it bought three years ago for far too much money. The question followed the slimmest of rumors on a British newspaper’s Web site: “Currently in favour around London’s webbist community is the rumour that Google (GOOG) has been in negotiations to buy Skype,” wrote Guardian blogger Jemima Kiss. (Great name!)
According to my own reporting in the “webbist community” in Silicon Valley, Swan discussed the wrong prospective asset sale. He should have addressed whether eBay would sell PayPal. It’s no secret that PayPal is blazing, and it’s so-called off eBay business, the payments it processes for non-eBay transactions, is becoming an ever-larger part of PayPal’s overall business. (For a detailed and highly readable overview of eBay’s business, including a comparison of its “marketplaces” and “payments” units, see Swan’s own pre-Q&A presentation at the CSFB conference.)
Two different Silicon Valley investors, in separate conversations this week, pointed out to me the embarrassment that Amazon (AMZN), with its market capitalization of $37 billion, had caught up to — and effectively surpassed — eBay (market cap: $45 billion), if you take out the value of PayPal. Ebay is a natural monopoly, the far-and-away leader in online auctions and carries no inventory. Amazon is a retailer with slim margins and a not easily defended business. The easiest way for eBay to reward its investors, they argued, would be to spin off PayPal, a move eBay management will never acknowledge considering — until the day a plan is announced. (A tip of the hat, by the way, for the second day in a row to the insightful Web site breakingviews.com, which examined the eBay breakup scenario on Nov. 7.)
Surely there are companies out there that could make better use of Skype than eBay has. But selling it won’t give eBay’s stock the pop it needs. Setting free PayPal might.