Shares of eBay EBAY surged Tuesday after an activist investor letter said shares of the e-commerce firm would soar if the company moved on from some of its none-core businesses. The climb is part of eBay’s massive post-Christmas surge, along with the likes of Facebook FB, Google parent Alphabet GOOGL, and much of the market.
Now the question is should investors consider buying eBay stock on the back of the new activist investor push before it reports its Q4 financial results on Tuesday, January 29?
Activist shareholder Elliott Management, which owns more than 4% of eBay stock, said in a letter Tuesday that the company should consider selling its StubHub ticket business and its portfolio of Classifieds properties. “In addition to unlocking substantial value, separating these assets would allow eBay’s management team to refocus its efforts solely on the core Marketplace business,” the firm wrote in a letter to eBay.
Elliott thinks that eBay's classifieds business has a potential value of $8 billion to $12 billion, and said that StubHub's value rests between $3.5 billion and $4.5 billion. Meanwhile, the firm contends that eBay stock can reach between $55 to $63+ a share by the end of 2020, which marks an upside of more than 75% to 100%.
The activist investor believes that eBay’s core marketplaces business is strong, but is upset that “eBay as a public company investment has underperformed its peers and the market for a prolonged period of time.” EBay said in a statement that it will “carefully review and evaluate Elliott's proposals.”
Shares of eBay surged as high as 8% through mid-day trading Tuesday on the back of the note. Overall, eBay, which spun off PayPal PYPL in 2015, is down roughly 17% over the last 52 weeks despite its nearly 30% climb since Christmas.
EBay stock rested at $32.87 a share Tuesday, which represented a roughly 30% downturn from its 52-week high of $46.99. The chart shows us just how much eBay has underperformed the larger e-commerce market and Amazon AMZN.
For years, eBay was known as an online auction-based marketplace for used goods. But today, only 10% of items are sold via auction and less than 20% of items are second-hand, according to Elliot. Plus, eBay is reportedly the world’s second largest online retailer outside of mainland China, where giant Alibaba BABA dominates.
Meanwhile, in an effort to offer sellers and buyers more options, eBay announced last year that it will stop using PayPal as its back-end payments service after 2020. EBay is set to slowly transition buyers and sellers to its new payment system over the next several years after it signed a new agreement with Adyen, which boasts Uber, Spotify SPOT, Gap GPS, and other big companies as clients.
Looking ahead, our current Zacks Consensus Estimate calls for eBay’s Q4 revenues to jump 9.7% to reach $2.87 billion. This would top Q3’s 6% top-line expansion. Meanwhile, the company’s gross merchandise volume is projected to pop 3.7% from $24.425 billion in the year-ago period to reach $25.317 billion, based on our NFM estimates. We should note that eBay’s GMV climbed 5% last quarter.
Plus, the company’s vital active buyer base is expected to reach 178.18 million in the fourth quarter, which would mark an increase of 1.18 million sequentially and 4.8% year over year expansion. In the third quarter, eBay’s active buyers grew by 4% across its platforms.
Moving onto the bottom end of the income statement, eBay’s adjusted quarterly earnings are projected to surge 15.3% to hit $0.68 per share. Investors should note that this estimate would come in below last quarter’s 19% earnings growth.
The e-commerce firm is a Zacks Rank #3 (Hold) at the moment, based in large part on its recent earnings estimate revision activity. If we look at its estimates compared to the company’s recent performance, eBay might not be able to impress investors. With that said, it is worth keeping an eye on eBay after Elliott Management’s letter predicts massive upside for eBay if it follows through on the firm’s suggestions.
EBay is expected to release its Q4 financial results after the market closes on Tuesday, January 29. Make sure to come back to Zacks for our breakdown of the firm’s actual Q4 earnings results.
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