CEO John Donahoe Talks About What’s Next for eBay’s PayPal, After Scott Thompson’s Surprise Exit to Yahoo

In an interview this afternoon, eBay CEO John Donahoe confirmed that it was indeed a “shock” — as he wrote to staff in a memo — after returning from a long New Year’s weekend, to learn that the head of one of the online commerce giant’s key divisions, PayPal President Scott Thompson, was leaving to be CEO of Yahoo.

With only 15 hours’ notice before the planned announcement this morning by Yahoo — and even earlier, given that scooped the news last night — Donahoe had no time to inform the company, especially those working at PayPal.

Still, he was as cordial as he could be, given the circumstances.

“Scott is a great guy, and he did a great job at PayPal, and I am one of his biggest supporters,” said Donahoe — known at the company for his even-handed demeanor — despite being blindsided by the longtime eBay exec and also Yahoo. “I told him, ‘I hope you are very successful at Yahoo.'”

But the eBay leader, who noted that he prefers to avoid corporate drama, shrugged off the suggestion that there would be any animosity going forward with Yahoo.

“It’s not the timing that I would have liked. It would have been nice for him to be able to tell the team, but that’s neither here nor there,” Donahoe said. “It’s no big deal.”

He also said he’s not holding a grudge against Thompson.

“Scott wanted to be a CEO, and that’s great. He felt the opportunity wasn’t going to come along again. He had the best non-CEO job in the world, but he wanted to be a CEO, and wanted to go for it,” said Donahoe. “I get that, and there’s not that many CEO jobs coming up.”

Still, after the news broke, one senior Yahoo leader joked to AllThingsD that he was afraid to call Donahoe.

Indeed, now that Yahoo has nabbed Thompson from its crosstown Internet peer, Donahoe will have to move fast to fill the exec shoes now abruptly left empty.

That’s especially true since Thompson’s departure is occurring at a most inopportune time.

First the good news: The digital payments division, which has been the bright spot at eBay, is on target to have a record 2011 performance, and is set to roll out several significant initiatives this year.

But the big item on PayPal’s agenda is daunting, too: To challenge both incumbent payment providers, along with new entrants, such as Google, by creating a digital wallet that can be used for physical payments at retail.

Nonetheless, the most pressing order of business, obviously, is that Thompson will have to be replaced.

And that’s no small task. The seven-year PayPal veteran has a deep knowledge of the digital payments market, and has a track record of success. PayPal has continued on a breakneck pace over the last couple of years, with the division’s revenue now on track to surpass that of eBay.

In addition, Thompson — often described as likable with an easy-going personality — was the company’s most visible cheerleader on payments, eagerly talking to major retailers and convincing them to get on board with its next generation of services.

Now, while PayPal has a plan and a budget for 2012, there is currently no sole person to implement the vision.

Donahoe, who will head up PayPal in the interim, said he addressed the PayPal executive team in a meeting this morning, in an effort to keep the momentum going.

“I got together with the team this morning and we spent a couple of hours together. Rest assured that they are driving ahead collectively to implement the plan that they helped put together over the last year,” Donahoe said. “They have a clear set of 2012 priorities, and they are excited.”

He added: “There was a shock in the morning, but by noontime, it was full speed ahead.”

As an example, Donahoe said eBay had already reassigned five of the company’s top 15 strategic accounts that Thompson was responsible for. Donahoe will take a couple of those, as will eBay CFO Bob Swan, and Devin Wenig, president of eBay’s Marketplaces unit.

But make no mistake, there needs to be a Thompson replacement, and quickly.

PayPal does have a deep bench of executive talent, and any number of senior executives could step up to take the role, although it’s also likely that eBay will conduct an external search before coming to that conclusion.

“I won’t worry about what’s next until we’ve made it a couple weeks into the year and are hitting our milestones,” said Donahoe, who noted that the company’s vision was shared by the management team, and even though Thompson was the one communicating externally, “It was not a one-person plan whatsoever.”

Donahoe declined to elaborate any further on how eBay would conduct a search.

Thompson’s direct reports and key leaders include:

Ed Eger, SVP and GM of North America, core payments and emerging markets; John McCabe, SVP of worldwide operations and customer service; Patrick Dupuis, CFO; Gary Marino, SVP of credit products and risk, who joined through the acquisition of Bill Me Later; Mark Lavelle, VP of strategy and business development, also from Bill Me Later; Rupert Keeley, SVP of Asia Pacific; Sam Shrauger, VP of global product and experience; James Barrese, VP of product development; David Marcus, VP of mobile, who joined through the acquisition of Zong; and Ranjana Clark, SVP and chief customer and marketing officer.

And there is a fairly long list of companies for eBay to attempt to cherry-pick from.

One obvious company is Amazon, which has a competing payments division. If PayPal could legally pull it off, Matt Swann, VP and general manager of payments of Amazon, would be a prime candidate to run the company.

There are also other companies with payment talent — many of which are also situated near eBay in Silicon Valley — including Apple, Google, Facebook, VeriFone, Intuit and the traditional payments providers, such as Visa, MasterCard or American Express.

While analysts viewed Thompson’s departure as a negative, they were still largely optimistic about PayPal’s future.

Colin Sebastian of Baird Equity wrote in a note to investors that “the core PayPal consumer value proposition remains strong, in our view, and remains well positioned for long-term growth.”

Citi Analyst Mark Mahaney pointed out that Thompson’s departure comes on the heels of a number of PayPal executive departures, including Stephanie Tilenius and Osama Bedier, both of whom left for Google; and Lorrie Norrington, who left eBay for personal reasons.

Still, eBay’s stock dropped $1.18 a share, or nearly 4 percent, on the Thompson news, to close at $30.16.

It is interesting to note that eBay’s market cap hovers close to $40 billion, which is still twice Yahoo’s market valuation.

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