With Elliott and Starboard pushing for changes at eBay (EBAY), including the spinoffs of StubHub and Classifieds, there was more than the usual focus on eBay’s earnings report last week. The company reported record earnings, initiated a dividend and increased its buyback authorization, but signs of concern remain.
Elliott, for one, is unimpressed.
“eBay’s fourth quarter earnings provided another example of why the Company needs to significantly improve operational execution and focus on its core Marketplace business. Despite a rapidly growing e-commerce market, eBay once again lowered Marketplace growth expectations to a paltry 1% for 2019. It is clear eBay needs urgent change including a holistic operational review which will produce lasting efficiencies and improved execution. Without question, this focus must include a strategic review that evaluates a separation of Stubhub and Classifieds, which is even more necessary given an increasingly disappointing Marketplace outlook. These steps are detailed in our plan from our letter, and we look forward to working collaboratively with the Company on improving eBay for all stakeholders.”
Elliott focused on what it considers the poor performance of the core marketplace business, and did not even mention either the dividend or the buyback. eBay’s dividend and buyback seem designed to rebuff Elliott’s efforts to radically restructure the company, including the spinoffs of the Classifieds and StubHub businesses. It would seem that this conflict is heating up.
CNBC commentator Jim Cramer suggested that Elliott and eBay ought to sit down and work together instead.
If eBay and Elliott can work together, then, like Humphrey Bogart and Claude Rains in Casablanca, this could be the beginning of a beautiful friendship.
Cramer continued, talking positively about the value of the spinoffs, and stating that eBay is a buy if the two sides can work together.
“The most encouraging sign for me? Elliott ended their letter not with demands, but with a simple request that management take their ideas seriously and work with them for the good of the business,” Cramer said.
The “Mad Money” host saw the biggest point of potential conflict being the spin-offs of StubHub and Classifieds, which eBay CEO Devin Wenig highlighted on the company’s most recent post-earnings conference call. But he did add that eBay is constantly reevaluating its holdings, so it’s possible he’s more open to the idea than it seems, Cramer said.
As for Cramer, he thought Elliott’s plan for the two businesses was “dead right.” He explained that Classifieds, a Craigslist-like service, is “already designed to operate independently,” and argued that ticket exchange platform StubHub could be a lot more valuable as a standalone company or a subsidiary of a related player like Live Nation, which owns Ticketmaster.
“Remember, eBay spun off PayPal back in 2014 and that’s been a huge win for shareholders — why not do it again?” he said.
Right now, the catch is that it’s unclear whether Elliott will push for new management or a new board of directors. But considering Wenig’s history at the company — during which he pushed for the spin-off of PayPal, improved the customer experience, pushed eBay to the top of its categories and repurchased a great deal of stock — Elliott could actually be “pleasantly surprised,” Cramer said.
“If Wenig and Elliott can find a way to work together here, I’m very optimistic and believe the stock could have a lot more upside,” he said. “Elliot Management has done a ton of research into eBay and I think they make some very good points, but I want to stress that the best person to implement their plans is the [company’s current] CEO, Devin Wenig. If, like me, you believe that eBay and the activists can work together, then the stock is absolutely a buy here, even after its big move up since Elliott’s announcement.”
We don’t know if or when eBay and Elliott will be hanging out at each others pool parties, but both sides agree that the current eBay stock price does not properly value the company. We tend to think they are both right on that count.
Disclosure: The author holds no position in any stock mentioned