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Spinoffs are interesting for a number of reasons, but perhaps most importantly because they tend to outperform the broader market.
The Guggenheim Spinoff ETF (NYSEArca: CSD) has outperformed the S&P 500 by more than 17 percentage points over the last three years.
The key is that you generally have to buy the parent company before the spinoff to get in on the soon-to-be spun-off company, or wait until after the spinoff and buy the newly independent company.
Well, today we have a rather special situation that allows investors to own one of the top plays in the fast growing mobile-payments business – before its spinoff.
EBay (NASDAQ: EBAY) shareholders won’t be getting PayPal shares until after the market close on Friday. PayPal will begin trading Monday on the Nasdaq under the ticker symbol PYPL.
But investors can buy “when issued” shares of PayPal and get in ahead of all these new owners.
Shares of PayPal Holdings (NASDAQ: PYPLV) are up just 2% since they started trading as when issued earlier this month. When issued shares are predicated on the fact that the the deal has been authorized but not issued yet. PayPal Holdings shares will convert to PayPal stock when the latter begins trading.
PayPal’s Outlook
Within eBay, PayPal has still managed to grow, but it has been undermanaged. Now that it will be outside of eBay, look for it to become a growth machine.
PayPal will be interesting as a stand-alone company, as it’s already been on the prowl for acquisitions. Heading up PayPal as CEO will be Dan Schulman, who founded Virgin Mobile and was a long-time executive at American Express (NYSE: AXP). He has gone on the record stating that he’s looking to use the war chest of cash that PayPal will have to make strategic acquisitions.
PayPal has already put close to $1 billion to work, recently buying up Xoom (NASDAQ: XOOM) and helping to build out its international money transfer capabilities.
But what everyone is really interested in is the company’s positioning in mobile payments. PayPal will use acquisitions to further penetrate the digital wallet industry. And don’t forget that it’s already a large player here.
Over a quarter of all the payments that PayPal processes are done via digital devices. Its payment-based mobile app, Venmo, is also seeing marked growth. Along those lines, there’s the idea that PayPal could be an enticing buyout for a larger player in the payments space.
The other exciting thing about being out from under eBay is that PayPal can pursue deals for its own benefit – such as partnering with other e-commerce players like Amazon.com (NASDAQ: AMZN).
PayPal has been the true growth segment of eBay. It currently accounts for 60% of eBay’s market value, while only comprising about 40% of eBay’s total revenues. But PayPal revenues were up nearly 20% last year – a growth rate that’s nearly double eBay’s e-commerce unit.
Based on its current market cap, PayPal is trading at roughly 6 times revenues, which is still a hefty discount to the payment-processing giants Visa (NYSE: V) and MasterCard (NYSE: MA), both of which trade above 11 times sales.
PayPal has one of the most robust offerings in the mobile-payment industry in terms of complete digital-payment solutions, from money transfers to digital and online payment checkout. And you have the chance to own it before current eBay shareholders get their hands on it.
This is making ordinary people rich
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