Ebay rose and faded in early morning trading on news that management would take Carl Icahn’s ball and run with it. As the activist investor suggested, the online retail giant will be spinning off PayPal in a move that may “unlock” Paypal’s value.

But what does this mean exactly, and how does it impact investors?

For one, it allows PayPal more independence from Ebay and therefore the ability to grow beyond the limitations that its relationship with Ebay has created. If it has, that is; not everyone agrees with Icahn’s hypothesis.

Looking at the numbers, however, his argument carries weight. PayPal saw 19% year-over-year revenue growth in 2013, and now has almost 17% of the online payments market. More crucially, it saw total volume of payments rise 29%.

Meanwhile, Ebay saw revenue growth for its ebay.com site grow 9%—healthy, but nowhere near the strength of Paypal. Meanwhile, its Enterprise division saw only 3% growth—an unhealthy trend, considering the overall growth in e-commerce for large brands.

Ebay Earnings

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The fact that Paypal is growing so much faster than Ebay suggests that demand for its product is exceeding demand for Ebay itself. A spinoff could allow Paypal’s management to focus on that growth potential, while still yielding the profits of such efforts to Ebay, who will retain ownership.

How do we value the spinoff? That’s difficult, but easier than valuing Paypal as an entity within Ebay.

First, we need to consider the growth drivers for Paypal currently in place. Ecommerce has been growing steadily in the United States for over a decade, but still comprises a small portion of the total trade in the country. Estimates of the size of U.S. commerce, the share of ecommerce, its growth rate, and its future potential can easily be graphed by an analyst to project how much the TPV number can trend in the future.

Additional growth drivers in their infancy or not yet fully realized are an important factor, but they are also much harder to calculate. The biggest question is mobile payments and internet security. On the one hand, several high profile hacks have compromised millions of credit card numbers over the last two years, which can be a positive or a negative for Paypal; the question is how and why. Secondly and much more importantly, mobile commerce promises to become the glue that unites online and offline commerce, but that rate of adoption and its impact on Paypal, especially with competition from Apple (AAPL), Google (GOOG), and Amazon (AMZN) heating up, needs to be carefully considered and then modeled.

Investors also need to calculate how much the market is predicting the value of the spinoff will create for shareholders. Ebay’s market cap rose about $4.5 billion Tuesday morning, which suggests that Paypal is undervalued by much or all of that amount. Since Paypal is seeing annual revenues of about $8 billion, the market is estimating that Paypal’s true value was underestimated by about 56% of total revenue.

It’s interesting to note that when Carl Icahn first made this suggestion in February, it had minimal impact on the stock. After it was released on the 27th, the stock rose at roughly the same rate that it’d been going up before—to a level above today’s price:

Ebay Earnings 2

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Speculators who bought Ebay when Icahn first wrote his letter in an attempt to piggyback on his activism have seen negative returns in the second and third quarters of this year, when SPY rose 7.5%. In this case, the “follow the leader” investing strategy did not work.

Now that Ebay is following Icahn’s advice, it remains to be seen if management’s decision will yield value for shareholders. As it stands currently, the company is valued for relatively low growth. If the company returns to the profitability level of 2013 instead of its loss for the first six months of 2014, its P/E will be 28 at current prices—decent, but not at the levels of BABA, FB, or even GOOG. If the spinoff can cause revenue growth acceleration that translates into EPS growth that helps it exceed 28 in a year, we could see its price rise dramatically. Or the spinoff will have minimal impact on Paypal’s growth rate, in which case the 6.8% price growth of Tuesday morning trading will slowly disappear.