The long-anticipated Paypal ($PYPL) spinoff from eBay (EBAY) finally became effective Monday as the digital payment company and online marketplace officially moved forward as separate entities.
eBay had announced the spinoff on June 26 after, succumbing to pressure from investors. Shareholders of eBay received a one-to-one distribution of the newly formed Paypal independent company based on the amount of shares they owned. Essentially, the biggest shareholders of eBay will have an equivalent sized stake in Paypal.
eBay hopes that by operating independently, Paypal will grow even more, in turn making eBay shareholders better off. Both companies are confident that they will continue to be successful. Since the announcement, eBay’s shares jumped 6.5% in value and closed at $66.29 on Friday.
Investors have known this spinoff was coming since last year, and only time will tell how successful it ends up being for both companies. But for now, it might be interesting to speculate over other large corporations that might spin off some of their subsidiaries.
In November 2006, Google, Inc. (GOOG) purchased YouTube for $1.65 billion. Considering that it’s the third most visited site in the United States, that’s one hell of a bargain. YouTube has grown to be tremendously successful since that time. Officially, Google doesn’t release revenues generated specifically by YouTube. Credit Suisse Group (CS) estimates that in 2015, $6 billion of Google’s $60 billion in annual revenue will come from YouTube. They also project that by the year 2024, YouTube will be generating $14 billion in revenue by the year 2020.
Google shareholders could have a lot to gain by spinning off YouTube into its own independently run company. While growth projections are impressive for the company right now, given the chance to operate independently, it seems it could only do better. After all, it’s the third most popular website in the US and the leader in online videos.
Some analysts believe that YouTube could be worth over $40 billion if it were to spinoff into its own entity.
ESPN was started in 1979 by Bill Rasmussen as the first ever network dedicated entirely to sports. In 1996, it was purchased by Walt Disney Co (DIS) and has generally been a cash cow for Disney ever since. ESPN brings in over $10 billion in revenue every year and is estimated to be worth around $40 billion, almost half as much as all of Disney, at $84 billion.
While ESPN has enjoyed tremendous success under the direction of Disney, its parent company has recently grown a little frustrated with the network’s booming costs. Disney wants the network to start making changes and cutting costs, and ESPN has initially been resistant. A spinoff could be very helpful for both companies. ESPN could probably grow a lot of more if it were unencumbered by the bureaucracy of Disney.
The pinnacle of television excellence is actually owned and operated by Time Warner Inc. (TWC) . Home Box Office was originally launched in 1972 as a premium service that streamed current movies into peoples’ homes. It didn’t achieve tremendous popularity though until it started to release original content in the early ‘90s. Once they released The Sopranos, their popularity skyrocketed, and they never looked back.
Time Warner (or Time-Life as it was originally called before it merged with Warner Communications) was involved with HBO from the very beginning. The network has almost always operated under the umbrella of Time Warner. But now that the company has become arguably the most successful streaming service on the market (yes, even better than Netflix), with over 35 million subscribers, there are many who believe that Time Warner would have a lot to gain from spinning off HBO and letting it pursue its own creative direction. The network pulls in nearly $5 billion every year and accounts for 27% of Time Warner’s total revenue.
Netflix DVDs (Qwikster)
In 2011, the CEO of Netflix, Inc. (NFLX) , Reed Hastings, made headlines when he said he was going to spinoff Netflix’s DVD portion of its business model into its own website called Qwikster. Hastings wanted to focus the website on streaming services only, but ran into an angry customer base as he tried to spin off Qwikster and charge his customers basically two fees: one for Netflix and one for Qwikster.
Everybody thought Hastings was ruining the business model that had made his company so successful. So after three weeks, Hastings announced that Netflix was no longer going to move forward with Qwikster.
It turns out Hastings was right about DVD rentals being a thing of the past. Netflix has closed a third of its distribution centers for DVD rentals, and has seen a decline in profits from DVD rentals every year since 2011. And on a personal note, I don’t know a single individual who uses Netflix’s DVD rental service.
Therefore, it might be a good idea for Netflix to spinoff Qwikster and devote its resources to improving its content and quality of material that is streams. Then, Netflix can let the market decide if the DVD business is worth it or not by watching if Qwikster can survive on its own.
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