Yahoo Thompson Hire Is Bad News For eBay

Jan. 4.12 | About: eBay Inc. (EBAY)

In business you're either rising or falling. There's no standing still.

The hiring of Paypal CTO Scott Thompson as Yahoo (NASDAQ:YHOO) CEO indicates that eBay's (NASDAQ:EBAY) drift may be terminal.

Both shares fell in value after the announcement, but Yahoo's fall was easier to understand. After all, most holders were looking for a take-out, not a new charge in the market. It was eBay's 5% loss that caused heads to scratch, but they shouldn't be.

Paypal has become eBay's key profit driver. The success of start-ups like Square has made payments an important area of innovation, but here is eBay's chief payments guy jumping onto a sinking ship. Why?

The only explanation that makes sense is that Thompson wanted a new challenge. Fine, but Paypal is facing a host of new challenges. Not only are the big payment companies like Visa (NYSE:V) and MasterCard (NYSE:MA) looking at new currency solutions, not only are payment industry veterans like VeriFone investing in the space , but so are Internet companies like Google (NASDAQ:GOOG). Paypal's position is under serious threat, and here's the CTO looking for new challenges... t Yahoo?

The move overshadows eBay's own CES announcements, which seems like small beer, a focus on specialty consumer electronics retailers and their need for a better online presence. Yawn.

In theory this could be a good hire for Yahoo. Alibaba, of which Yahoo still owns 40%, is the biggest site for sellers on the Internet, representing the China market, while Yahoo's reach includes most of the world's buyers, in theory. What is needed to link the two is a common currency, a payment method, and that's what Thompson is all about.

If he can make something work between Asian sellers and American buyers, Yahoo might become special again.

This may be the rare case where you sell the rumor and buy the news.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.