A Secret Win for PYPL Stock
Are you curious why PayPal Holdings Inc (NASDAQ:PYPL) split from eBay Inc? I mean this was a fruitful partnership for over a decade and PYPL stock hasn’t exactly soared since the two companies parted ways. What was the incentive?
It took a little while to map out where this was going, but I finally have an answer. It’s clear to me that PayPal executives saw the writing on the wall. They knew monumental change was coming and decided to opt for an aggressive strategy.
They knew that Silicon Valley was about to invade the finance industry. It’s the only answer that makes sense. PayPal saw startups finding new and innovative ways to encroach on its main business, so they decided to go rogue. The dawn of “fintech” as a buzzword is all that we need to know about the separation.
Interest in fintech skyrocketed through 2015. Square Inc is just one example of this new breed of financial technology firms. Many of them are trying to revolutionize the payments industry, but there are plenty with more original ideas.
Take SoFi. The company allows people to refinance their loans or take out mortgages online. You can complete the entire process without ever leaving your house or talking to a broker. It’s providing the same services as banks but with greater convenience. (Source: The Online Mortgage Has Finally Arrived, The Wall Street Journal, March 3, 2016; http://www.wsj.com/articles/the-online-mortgage-has-finally-arrived-1457019409.)
Or take Kensho: this Goldman Sachs-backed startup could replace the most advanced research and consulting services on Wall Street. It’s using the latest artificial intelligence (AI) techniques to build the world’s smartest financial search engine. You should be able to type a finance question in plain English and get back a real answer. (Source: “Goldman in Ventureland,” Bloomberg Business, July 28, 2015.)
These are just two of the companies that could radically alter finance. PayPal executives obviously saw these changes coming and decided it was time for expansion. Here’s an extract from the announcement of their split with eBay (emphasis mine):
“Separation makes it easier for both PayPal and eBay to grow their own businesses and provides each company with new market and partnership opportunities that would have been more difficult to pursue while part of the combined corporate family.” (Source: “Updates for our customers,” PayPal Holdings Inc web site, last accessed March 8, 2016.)
They were unshackling PayPal from a constraint. Management knew that keeping PayPal tethered to eBay would only spell doom for PYPL stock, so they set it free.