Online marketplace eBay Inc. has a lot going on, and shareholders are betting that the company could benefit from more focus.
Shares of eBay climbed Tuesday morning after Elliott Management announced a 4% stake in the company and suggested a five-step plan for unlocking shareholder value, which included spinning out the company’s
classifieds and StubHub businesses. Elliott argued that eBay could fetch a valuation of $55 to $63 a share by the end of next year under its proposal.
“While we believe that execution missteps and unclear focus have impaired value, eBay is far from broken, and its future should be bright,” Elliott said in a letter to management. The stock is up nearly 8% and is on track for its best single-day performance since Feb. 1, 2018.
The company successfully spun out PayPal Holdings Inc.
in 2015, and Elliott sees room for eBay to create additional valuable spinoffs while freeing up management to focus on eBay’s core marketplace business. In particular, the team at Elliott argued that there is $8 billion to $12 billion of value in eBay’s Classifieds Group, which includes a number of international platforms. Elliott sees a “positive macro backdrop” for the “fast growing” classifieds industry.
The firm also suggested that eBay separate StubHub, a ticket marketplace, from its core business. StubHub “would command significant value as a market-leading, scale business,” per Elliott, which sees the business valued at $3.5 billion to $4.5 billion.
Elliott called eBay’s core marketplace business “deeply undervalued” and said it could represent an attractive takeover target if it were more of a pure-play platform.
EBay said in a release that it “appreciate[s] Elliott’s recognition of the strength and power of eBay’s business and will carefully review and evaluate Elliott’s proposals.”
DA Davidson analyst Tom Forte told MarketWatch that the letter “seems to have struck a chord” among those who believe that there’s valued to be unlocked at eBay if the company were to spin off its StubHub and classifieds assets. He said that the valuations ascribed to those two businesses in the Elliott letter “seem optimistic” though he agrees that eBay shares are currently undervalued.
“I understand the logic of what the shareholders propose, though I am more optimistic than they appear to be about eBay’s ability to reignite growth on core eBay via advertising and payments,” Forte said.
The Wall Street Journal reported on Tuesday morning that Starboard Value LP, another hedge fund, has an eBay stake as well and has also discussed potential spinoffs of StubHub and Classifieds. Starboard didn’t return a MarketWatch request for comment.
Shares of eBay have dropped 16% over the past 12 months, while the S&P 500
has lost 6.6%.