NEW YORK (AP) - EBay is splitting off its fastest growing segment, mobile payment service PayPal, the e-commerce company said Tuesday.
Investors applauded the news, sending eBay's shares up nearly 7 percent in morning trading.
The move comes after months of pressure from activist investor and billionaire Carl Icahn, who has a 2.5 percent state in eBay, according to FactSet. EBay CEO John Donahoe had been adamant that splitting off PayPal was the wrong move for the company. But Tuesday, the company said making the mobile payment service a separate publicly traded company next year "maximizes strategic focus and flexibility for eBay."
Although it has not become mainstream yet, the mobile payment sector is growing quickly. Citi Investment Research analyst Mark May said in a note last month that the sum total of mobile payments could grow from $1 billion in 2013 to $58.4 billion by 2017. Apple threw down a gauntlet in September with its own digital wallet Apple Pay, seen as a major competitor to PayPal.
"The payments landscape is hyper-competitive, the pace of change is accelerating and everyone is gunning for PayPal," said Forrester analyst Denee Carrington. "The split will give PayPal greater agility to help it achieve its full potential."
Donahoe also said he will step down as CEO of eBay after overseeing the separation of the two companies and will not have a management role in either of the two afterward. He may have a seat on the board at one or both, along with eBay Chief Financial Officer Bob Swan.
Dan Schulman, an executive at American Express, will be the new president at PayPal, effective immediately. The 56-year-old will become PayPal's CEO once the separation takes place.