PayPal President: No Spinoff

After eBay said in April that it planned to spin off its Skype business, some investors and analysts started wondering about the e-commerce company’s other major subsidiary: What about PayPal? In the past two weeks, a number of sources have said they have heard talk that eBay is exploring different options for realizing more value from the lucrative payments business.

One source said he had heard the company was considering selling PayPal to a consortium of private equity investors while keeping an equity stake. Another heard a rumor that eBay would issue a tracking stock for PayPal.

But during a visit to BusinessWeek, PayPal president Scott Thompson dispelled these notions. Thompson says that although even he has heard the speculation about spinning off PayPal, he and eBay CEO John Donahoe have not discussed any such options. “We have not talked about that,” he says. “I think we’re going to be part of the eBay Inc. family for a long time to come.”

Thompson admits that he “understands the logic” of wanting to unlock value in PayPal, but he argues that eBay’s strong balance sheet is an important asset to have while his business is growing. The parent’s deep pockets helped with the $945 million acquisition of Bill Me Later in October, Thompson says. “If we were a separate company, would we have done it? I’m sure we would have tried because it was the right thing to do for the business. But it was fundamentally easier having that very strong balance sheet.”

Donahoe faces a difficult challenge in regaining momentum at eBay. The one-time Internet star has struggled in recent years, as people have turned away from its traditional auction business and it has tried to compete in the retail business with Amazon and others. eBay’s stock price has tumbled by more than 50% in the past five years, to $17.25. Donahoe is trying to improve the usability of the core shopping site, while doing away with non-essential assets.

eBay was cheered on for announcing the plan to spin off Skype in an initial public offering next year. The move would put an end to what has been a disastrous acquisition, and perhaps unlock some value for Skype, the high-growth voice-over-Internet service that brought nothing to the company’s core e-commerce business.

Sources suggest tensions inside PayPal are growing the longer eBay remains a drag on its value. “It has been a frustration within PayPal that eBay’s stock is not fully reflective of the value of PayPal,” says one former eBay executive.

The option of spinning off PayPal may become more attractive as the payments business continues to expand well beyond eBay’s own sites. In the past year, PayPal has struck partnerships with thousands of e-commerce sites, including big players like Recent releases of mobile PayPal applications for the iPhone, Blackberry and other devices are one of the first steps in what Thompson views as an integration of online and brick-and-mortar shopping experiences. And the executive says online payments have a long way to go in emerging economies like China and India.

With Peter Burrows in Silicon Valley and Spencer E. Ante in New York.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE