PayPal Holdings Inc. shares rose 5.4 percent in their market debut as investors expect the company will grow after separating from EBay Inc.
The shares reached $40.47 at the close Monday in New York. PayPal is trading on the Nasdaq Stock Market as PYPL, its original ticker symbol before being acquired by EBay in 2002. EBay gained 2.4 percent to $28.57.
PayPal Chief Executive Officer Dan Schulman said helping brick-and-mortar retailers develop smartphone apps that let consumers place orders and make payments in advance -- as it has done with Subway and Burger King -- will be important to maintaining the company’s growth. Global transactions total $25 trillion a year, about 10 percent of which are made online, making physical stores a key area, he said.
“It’s a much bigger marketplace,” Schulman said in an interview.
PayPal opened trading with a market value almost 1.4 times that of EBay Inc. as investors bet on bigger returns from the digital payments business than its former parent company, which is struggling amid increasing competition in e-commerce.
“Investors have been waiting to invest in PayPal for a long time, even before the split was announced,” said Gil Luria, analyst at Wedbush Securities in Los Angeles. “We’re finally at a point where you can only own PayPal with its market-leading position and growth rate.”
PayPal had 169 million users and processed 1.1 billion transactions in the second quarter, with transaction volume up 27 percent from a year earlier, the company said last week. The company’s value is in its growth rate as online shopping booms and people’s spending habits change.
EBay’s marketplace becomes a value investment, with 157 million buyers who spent $20.1 billion in the second quarter, down 2 percent from a year earlier due largely to currency exchange rates. Even with its slowdown tied to a data breach and changes to Google Inc.’s search engine last year, EBay is more profitable than PayPal.
“We need to see growth accelerate,” said Kerry Rice, an analyst at Needham & Company, LLC in San Francisco. “However, I think it’s going to take approximately 18 months to see a meaningful impact to improve traffic and search on EBay.”
EBay in September announced plans to spin off PayPal following pressure from activist investor Carl Icahn. EBay bought PayPal to add a payments service to its marketplace. EBay sales accounted for 22 percent of all PayPal transactions in the second quarter, down from 26 percent a year earlier.
PayPal closed Friday at $38.39, some 37 percent higher than stand-alone EBay’s $28, according to “when-issued” prices. When a large company splits up, stock markets allow trading of the pieces in advance to determine pricing and limit volatility. Those transactions only settle after the spin off is completed.
(An earlier version of this story was corrected to say that PayPal processed 1.1 billion transactions, rather than payments.)