Story by Yahoo! Finance

There’s been a lot of anticipatory excitement over eBay’s (EBAY) plan to spin off its faster-growing payments unit, PayPal. This week, the markets got to quantify the hype, as shares of PayPal began trading separately on a when-issued basis under the ticker symbol PYPLV.

The spin-off, in which eBay shareholders will get one share of PayPal for every share of the parent company they hold, won’t be completed until July 17. But in the meantime, PayPal’s when-issued shares shot up to $37.40 on Tuesday. That’s more than 60% of the value of all of eBay even though PayPal’s sales last year were about 40% of the combined companies (they were about even in the first quarter of 2015).

One reason investors are more excited about PayPal than eBay is the payment unit’s faster growth rate. Revenue was up 19% to $8 billion last year, about double the rate of growth in the older e-commerce and auction unit. The value of all transactions handled by PayPal increased 26% to $235 billion, fed not just by the company’s signature payment service but also by mobile transactions on the popular Venmo app it acquired in 2013.

Investors are also pleased that PayPal may be able to take a huge leap forward by striking deals with other e-commerce companies such as Amazon (AMZN) or Alibaba (BABA) that likely wouldn’t do business with a unit of competitor eBay. One of the biggest risks to PayPal’s continued growth is the threat of being eclipsed by a home-grown payment solution from one of those companies.

Alibaba’s Ant Financial Services Group just raised equity financing at a reported valuation of $45 billion, coincidentally the same value put on PayPal by when-issued share trading. Separated from Alibaba rival eBay, PayPal might be able to forge an alliance with Ant, or at least help process transactions via its Braintree unit. Braintree already helps merchants work with mobile payments platforms from both Apple (AAPL) and Google (GOOGL) .

PayPal’s $45 billion valuation is 30 times what eBay originally paid for the company back in 2002, but it may give some investors pause. It earned only $419 million in net income last year, though it would have done much better absent a one-time $713 million tax charge for repatriating cash held overseas in previous years. Already, the company has posted first quarter 2015 net income of $248 million.

At 5.6 times last year’s revenue, PayPal would trade at a higher price-to-sales ratio than other tech companies like Google, Apple or Amazon. But that’s also about half the level of the giants of the financial transaction world, Visa (V) and Mastercard (MA).

PayPal CEO Dan Schulman, a longtime veteran of American Express (AXP), is also planning a shopping spree as his company will leave the nest with some $6 billion in net cash. Schulman’s wasted no time, announcing the $1 billion acquisition of international money transfer start-up Xoomlast week. There are plenty more areas PayPal could explore via acquisitions, including bulking up its presence at real world retail establishments.

There’s one more path that could reward investors who buy even at the $45 billion valuation. Billionaire investor Carl Icahn, who badgered eBay into the spin-off, has pushed for PayPal to be acquired by a larger player. That could provide a quick payoff, though maybe not the long-term home run some investors desire.

Legal Notice