eBay (EBAY) has announced that it plans to spin off PayPal in 2015, seemingly following the suggestion of hedge fund billionaire Carl C. Icahn, only 6 short months after rejecting the idea out of hand.

PayPal is eBay’s payment brand and one of its major products. PayPal’s major competitors are MoneyGram, Western Union, Global Payments, Inc., Xoom and Euronet. The recent trends in digital currency and technology such as Bitcoin and Apple Pay will become major threats to PayPal as well.

Competition in mobile payments and the e-commerce field over all is heating up due to new innovations and advancements in technology. Both among old stalwarts, such as Alibaba and Apple, as well as new startups, such as Uber, that seemingly come out of nowhere. This new level of competition is causing eBay to shift its focus back to its core. A PayPal spinoff is the right move for eBay, but will be pointless without a plan to stay ahead of the market’s constantly shifting needs and fickle appetite.

Chart 1

PayPal’s net revenue accounted for 40.30% of eBay’s total net revenue as of fiscal year 2013, which is 4.27% higher than the year 2012. As can be seen in the above chart, PayPal’s revenues have been growing at a rapid pace in recent years. In the short term, eBay will endure a significant loss period, not only from the revenue generated by PayPal, but also due to lost partnerships eBay built with its PayPal services.

Bottom line: The spinoff is favorable to PayPal. With the hiring of American Express’s former executive, Dan Schulman, as its CEO, PayPal will emerge with strong leadership.  Schulman has a strong and relevant track record having specialized in the Enterprise Growth arm of AmEx. This change in management structure will allow PayPal to better arrange its strategic roadmap and focus on its payment solutions and products. From eBay’s side, this spinoff action could give eBay the opportunity to focus on the changing competitive landscape and better compete both domestically and internationally. Despite the short-term loss, eBay will be better positioned to drive long-term growth.

While investors are understandably pleased with the announcement, pushing eBay’s shares up 7.5 percent to $56.63, in the absence of a clear plan, eBay’s future is still uncertain. We still need to watch eBay’s moves over the next few months to see how they might affect eBay’s overall performance.