PayPal stock will hit the market on Monday, July 20, as parent company eBay Inc. (Nasdaq: EBAY) spins off the digital payment portion of its business.
PayPal will trade under the ticker "PYPL" on the Nasdaq. EBay officials first announced the PayPal spin-off in September 2014, but the board didn't formally approve the deal until late June.
Through the PayPal spin-off, eBay shareholders of record as of July 8 will receive one share of PYPL stock for every share of EBAY they own.
EBay will now focus solely on e-commerce, while PayPal will remain focused on digital payments.
The biggest goal for eBay will be growing its user base. The platform has 25 million sellers and more than 157 million active buyers. Shoppers can browse roughly 800 million live listings at any time, according to company officials. The company had revenue of $8.8 billion in 2014.
At the end of 2014, PayPal had more than 165 million active accounts. It processed more than $235 billion in payments that year too. In the most recent quarter, its revenue touched $2.11 billion. That was the first time it posted more revenue than eBay in a quarter, as eBay had revenue of $2.07 billion.
Money Morning Executive Editor Bill Patalon has been following the PayPal spin-off story for investors since the news first broke in September 2014. Corporate spin-offs can be very lucrative for investors.
A Penn State University study found that spin-off stocks post an average gain of 76% in their first three years.
"These transactions, where one company wins its freedom from its parent, are the Corporate America version of the Declaration of Independence," Patalon said. "But these 'Declarations' benefit both parties."
"Freed from the need to 'conform' to a common corporate mission, the two newly independent firms are able to pursue independent, profit-maximizing growth strategies that also deliver peak shareholder value," he continued.
This is particularly true for PayPal stock after it comes to market. Here's what investors can expect from PYPL stock following the PayPal spin-off...
Where the PayPal Stock Price Is Headed After the eBay Spin-Off
PayPal is already one of the strongest companies in the digital payments industry. Other major tech firms like Apple Inc. (Nasdaq: AAPL) and Google Inc. (Nasdaq: GOOG, GOOGL) are just getting started.
PayPal stock will also benefit from the company's high exposure to digital commerce. That's one of the fastest-growing areas in the digital payment industry.
And now, PayPal recently agreed to purchase the digital money transfer pioneer Xoom Corp. (Nasdaq: XOOM) for $890 million in cash.
Xoom focuses on digital money transfer, specifically sending money out of the United States. It will help PayPal expand into countries like China, India, Brazil, and Mexico. According to Money Morning Defense & Tech Specialist Michael A. Robinson, the partnership has the potential to be a "killer combination."
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"The potential for cross-selling products - and for creating new ones - clearly makes it possible for the PayPal/Xoom entrant to pull off a hefty market-share grab," Patalon said.
Another reason Patalon is bullish on spin-off stocks is because they make excellent buyout candidates down the road.
"Because they are so focused, so effective, and so profitable, many spin-off companies are ultimately taken over at hefty premiums to their market price," he said.
And even if PayPal doesn't end up being a buyout candidate, Patalon said you can expect the stock "to deliver market-beating gains for the next several years."
But investors shouldn't expect PayPal stock to immediately soar when it hits the market. In fact, many spin-off stocks see a sell-off when they debut. That's because mutual funds, ETFs, and index funds typically can't hold the new security because it doesn't adhere to their mandates.
But that can actually be a great thing for retail investors. In fact, Patalon says that can give you a "bargain-basement buying opportunity."
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Editor's Note: As a special service to Money Morning readers, we're providing you with the Roadmap to Growing Rich from the Spin-Off Boom. In it, you'll find three additional spin-offs that could double your money this year. Click here to learn how to download your copy.