Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How Alibaba Could Capitalize on the EBay-PayPal Split

Companies / Tech Stocks Oct 08, 2014 - 08:29 AM GMT

By: Frank_Holmes

Companies

Internet auctioneer and retailer eBay announced last week that it will be spinning off its online payment service PayPal into two listed companies. This decision, heralded by activist shareholder Carl Icahn, among other investors, will allegedly enable both companies to focus exclusively on what they do best.


The split makes a lot of sense. PayPal's non-eBay business is growing three times faster than eBay-related transactions. Freeing itself from its parent company will strengthen its brand and marshal its troops under one banner. It will also enable PayPal to allocate more intellectual bandwidth toward improving its mobile payment services in order to stay ahead of serious competitors such as Square Cash, Google Wallet and newcomer Apple Pay, which launched with the iPhone 6. Facebook might also be looking into mobile payment services soon, as a recent hack revealed that Facebook Messenger contains hidden code to accommodate friend-to-friend payments.

But another repercussion of the split is that eBay will give up much of its market value. The company is currently valued at roughly $70 billion, and of that amount, PayPal might be entitled to $47 billion. When the two go their separate ways, eBay will then be worth $23 billion.

Which is very close to the amount Alibaba Group raised on the first day of its historic IPO.

Alibaba Tops the List of the 10 Largest U.S. IPOs to Date

Even though eBay CEO John Donahoe, who will be stepping down once the spinoff is complete, has roundly denied rumors that the company is for sale, Alibaba founder and chairman Jack Ma is in the buying mood.

Alibaba, which we now own in our China Region Fund (USCOX), has already made several recent high-profile investments and acquisitions. It currently owns about 30 percent of Weibo, China's answer to Twitter; 26 percent of Intime Retail, a Chinese department store; 16.5 percent of Youku Tudou, a Chinese Internet video company; UCWeb, a Chinese mobile e-commerce firm; and even 50 percent of the Guangzhou Evergrande Football Club.

In his letter to investors, Ma hinted that Alibaba is now looking beyond China's borders:

"From the very beginning our founders have aspired to create a company founded by Chinese people but that belongs to the world. In the past decade, we measured ourselves by how much we changed China. In the future, we will be judged by how much progress we bring to the world."

There was a time when eBay appeared likely to dominate not just the American market but the Chinese market as well. Then-CEO Meg Whitman stated in 2004: "Ten to 15 years from now, I think China can be eBay's largest market on a global basis... We think China has tremendous long-term potential and we want to do everything we can to maintain our number one position."

Whitman was certainly right about China's tremendous potential.

Today, Taobao, Alibaba Group's eBay-like consumer-to-consumer marketplace, does more business and moves more inventory annually than eBay does in China alone. If Ma were interested in reaching American consumers, eBay could very possibly be his entry point.

"The only way Alibaba can break into the American market is to have an American company like eBay," Marth Stokes, CEO of TechniTrader, told International Business Times. "Otherwise, they're going to have a really tough sell."

Asian E-Commerce Companies Making Huge Strides

Led by giants such as Google, Facebook and Amazon.com, U.S. Internet companies maintain a firm upper hand over the rest of the world. Of the $1.5 trillion represented below, American companies control close to $1 trillion.

But Asian Internet companies, Chinese in particular, are gradually gaining ground.

World's Largest Publically Listed Internet Companies by Market Capitalization

Alibaba, fueled by its record IPO, has already surpassed Facebook in market cap. It's now the second-largest company in the Nasdaq Internet Index behind Google, and were it in the S&P 500 Index, it would be the 11th largest company.

Alibaba's hypothetical acquisition of eBay would be a major tipping point, further tilting e-commerce in China's direction. Not only would the auction site fall under the umbrella of the Alibaba Group, but much of PayPal's business might also drift to Alipay Wallet, which handles much of the transactions made through Alibaba's many marketplaces. Although Alibaba no longer has ownership of Alipay, it's already the world's leading mobile payment service. Last year alone, 2.78 billion transactions were made using Alipay, amounting to $150 billion--far exceeding PayPal and Square's combined $50 billion in volume.

Competition Mounting

Despite the success of digital behemoths such as Google, Facebook and Amazon.com, American Internet stocks are actually lagging behind their Asian counterparts. Whereas the former have returned only 0.55 percent, the latter have delivered 2.59 percent year-to-date (YTD).

Asian Internet Stocks are Outperforming U.S. Internet Stocks Year-to-Date

This might very well persist as more and more people in the Asia region gain connectivity and spend their money online. According to the International Telecommunication Union (ITU), around 45 percent of the world's Internet users will be from the Asia-Pacific region by the end of this year. In China alone, there are 618 million Internet users. Of those, 302 million--nearly the population of the United States--shop online.

Again, Donahoe claims neither eBay nor PayPal is for sale. But this is the same man who on numerous occasions opposed Icahn's suggestion to split the two. With Internet company mergers and acquisitions accelerating--Facebook, for instance, just closed on a deal to acquire popular instant messaging service WhatsApp for $22 billion--it's not out of the realm of possibility that eBay might one day be subsumed by Alibaba Group.

"EBay may be a shark in the ocean, but I am a crocodile in the Yangtze River," Ma stated in 2005. "If we fight in the ocean, we lose--but if we fight in the river, we win."

We at U.S. Global Investors are curious to see how a growing Chinese middle-class will shift the global online marketplace ecosystem and payment service industry. The winners will likely be Asian companies such as Alibaba. Smartphones such as the Apple 6 will also benefit, as more and more people will use them to make transactions. The losers could possibly be cash and second-tier credit cards such as Discover.

But like a weathervane, our investment team will be sensitive to the direction Internet companies take--on both sides of the Pacific Ocean.

Want to receive more commentaries like this one? Sign up to receive email updates from Frank Holmes and the rest of the U.S. Global Investors team, follow us on Twitter or like us on Facebook.

By Frank Holmes

CEO and Chief Investment Officer
U.S. Global Investors

U.S. Global Investors, Inc. is an investment management firm specializing in gold, natural resources, emerging markets and global infrastructure opportunities around the world. The company, headquartered in San Antonio, Texas, manages 13 no-load mutual funds in the U.S. Global Investors fund family, as well as funds for international clients.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.

Frank Holmes Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in