(REUTERS) - EBay Inc on Wednesday said activist investor Carl Icahn made a non-binding proposal for the e-commerce company to spin off its PayPal payments business into a separate entity.

Shares of eBay rose 7.8 per cent to US$58.68 in after hours trading.

But eBay, which bought PayPal for US$1.5 billion (S$1.9 billion) in 2002, said its board concluded that it would be better off keeping PayPal as part of the company.

"Payment is part of commerce, and as part of eBay, PayPal drives commerce innovation in payments at global scale, creating value for consumers, merchants and shareholders," eBay said in a statement.

Mr Icahn, who earlier this month bought shares and derivatives giving him a 0.8 per cent economic interest in eBay, also nominated two of his employees to the eBay board.

Revenue at eBay's PayPal division rose 19 per cent during the holiday quarter, fuelled by the growing use of mobile phones to shop. PayPal's total payments volume, a gauge of how much it is used to complete a transaction, rose 25 per cent to US$180 billion worth of transactions.

Companywide, revenue rose 13.5 per cent to US$4.53 billion for the quarter ended Dec 31.

For 2014, eBay forecast revenue of between US$18 billion and US$18.5 billion, while analysts expected a forecast of US$18.5 billion, according to Thomson Reuters I/B/E/S.

Net income for the fourth quarter was US$850 million, or 65 US cents a share, up from US$751 million, or 57 US cents a share, a year earlier. Excluding some items, eBay earned 81 US cents per share, a penny better than expected.