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What Will eBay do to Calm Down Investors?

Posted on Tuesday, Feb 12th 2019


For the past few years, eBay (Nasdaq: EBAY) has been trying several strategies such as improving customer experience, search features, and improving seller capabilities to deal with Amazon’s might. But none of them seem to have worked for it as its growth has continued to slow down. For the recently reported quarter, eBay beat market expectations and even tried to lure the investors with the promise of a dividend. But they aren’t pleased and have initiated activist actions.

eBay’s Financials

eBay recently announced its fourth quarter results which saw revenues grow 6% over the year to $2.88 billion, ahead of the market’s estimates of $2.87 billion. It reported fourth-quarter net income of $763 million, compared with losses of $2.6 billion a year ago. On an adjusted basis, EPS of $0.71 was significantly better than the market’s forecast of $0.56 for the quarter.

During the quarter, eBay’s active buyers grew 4% across its platforms, to end with 179 million global active buyers for the year. Marketplace platforms revenues grew 7% to $2.3 billion with Gross Merchandise Value improving 1% to $23.2 billion. StubHub revenues grew 2% to $314 million with GMV falling 2% to $1.4 billion. Classifieds platforms saw revenues grow 8% to $263 million.

For the first time in 24 years, eBay announced a dividend payout. It is paying a dividend of $0.14 a share. It is also initiating a buy-back of $5 billion worth of stock in this fiscal. It bought back $1.5 billion of its common stock in the recently ended quarter.

eBay ended the year with net revenues of $10.75 billion compared with $9.9 billion recorded a year ago. Net income for the year came in at $2.53 billion compared with a net loss of $1 billion a year ago.

Despite surpassing market expectations for the quarter, eBay’s outlook was disappointing. For the current quarter, eBay forecast revenues of $2.55-$2.6 billion with an adjusted EPS of $0.62-$0.64. It expects to end the year with revenues of $10.7-$10.9 billion and adjusted earnings of $2.62-$2.68 a share. The market was looking for revenues of $2.66 billion for the current quarter with an EPS of $0.61 and revenues of $11.17 billion for the year with an EPS of $2.59 for the year. eBay attributed the lower revenue outlook to a GMV that was shrinking even though its active buyer pool was growing. It said that the decline was a result of the changes they made to the buying process that haven’t scaled well with some eBay’s product pages driving less website traffic and lower conversion rates. Given that there wasn’t a quick fix to these changes, they expect the pressure to growth to continue into the current year.

eBay’s Growth Focus

eBay continued to emphasize that the growth in the current year will be driven by improving user experience and by pursuing long-term growth opportunities in advertising and payments. It is leveraging its customer data to provide additional ways to compare value and surface unique inventory. Sellers will get access to more data and tools with enhanced protections. It is improving delivery and returns through broader coverage of guaranteed shipping and its new return experience. It continues to move more SEO pages to a catalog-structured data foundation. It is working on AI capabilities to drive SEO and social traffic. It is also making changes to its marketing strategy by reducing spend on low ROI initiatives and refocusing efforts on acquiring new buyers to drive growth. It realizes that this will continue to put pressure on GMV, but over time, will deliver higher profitability.

Within advertising, it began rolling out placements more broadly in search results. This has helped drive nearly $80 million of revenue in the quarter. For the full year, Promoted Listings contributed nearly $200 million in revenues. Within Payments, it has been nearly 4 months since its payments initiative went live in the US. Since then, it has enabled more than $140 million of GMV with over 3,500 sellers through the program. It is now working on expanding the payments service to other markets and expects to begin a full rollout in 2020. eBay is targeting $1 billion in advertising revenues and $2 billion in payments revenues when at scale.

Last year, eBay also tried to drive growth through a few acquisitions. In October last year, it bought, a UK-based classifieds site, for an undisclosed sum. Prior to the acquisition, was owned by Cox Automotive and was a leading UK-based classifieds site that simplifies the process of car buying and selling. The acquisition was intended to drive growth to its Classifieds segment.

Earlier last year, eBay had acquired Singapore-based Giosis, for an undisclosed sum. Giosis was known for the Qoo10 service that operated an e-marketplace service that provided sellers with access to customizable sales strategies and buyers with access to an extensive product portfolio. It focused on local marketplaces in five countries including China, Hong Kong, Japan, Indonesia, Malaysia, and Singapore. The company had raised $82.1 million prior to the acquisition. The acquisition was aimed at helping eBay expand presence in these markets.

eBay’s Activist Investor Activity

Despite these moves, investors in eBay aren’t very pleased. Recently, activist investor Elliott Management, which holds a 4% stake in eBay, suggested drastic changes to eBay to drive investor value. The proposal includes five key changes to eBay – spinning off of the valuable StubHub and Classifieds divisions into separate companies as these segments are seeing rapid growth, but may not be getting the valuation they deserve; asking management to focus its efforts on the core online marketplace; explore cost control initiatives; drive higher capital returns to shareholders; and find the right management to drive the turnaround. Elliott believes that eBay is not truly focusing on its core marketplace business and the management is getting distracted by other non-core activities. The spin off will help eBay get back on track on its core business. Elliott believes that StubHub alone could be valued at $3.5-$4.5 billion and the Classifieds could be valued at $8-$12 billion.

eBay has not yet commented on how far it wants to follow through on this demand. It has acknowledged the letter and is considering the proposals mentioned. eBay may have tried to placate the investors with the promise of a dividend this quarter, but that may not be enough.

This is not the first time that eBay has had to deal with activist investors. In 2014, Charles Icahn had made eBay spin off PayPal. It turned out to be a good move for the investors. PayPal recently reported its fiscal 2018 results that saw revenues grow 21% over the year to $15.45 billion and non GAAP EPS climb 28% over the year to $2.42.

I think spinning off StubHub is a good idea. What acquisitions might help the remaining eBay to improve?

Its stock is currently trading at $35.26 with a market capitalization of $32.3 billion. It touched a 52-week high of $44.36 in March last year. Like most other stocks, it had fallen to a 52-week low of $26.01 in December last year.

Photo Credit: Mike Knell/

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