EBAY eBay Inc

By Cara Lombardo and Laura Stevens 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 23, 2019).

Two big hedge-fund investors are circling eBay Inc. and suggesting it part ways with its StubHub ticketing and classified-ads businesses, moves that could again fracture the company at the hands of activists.

In recent years, eBay shares have languished as the company has sought to distance itself from its reputation as an online auction house and has battled the likes of Amazon.com Inc. in the e-commerce arena.

Elliott Management Corp. said Tuesday it has a more than 4% stake in eBay and urged the online marketplace to consider spinning off or selling the businesses because they could be worth more individually.

Another hedge fund, Starboard Value LP, also has a large position in eBay, of less than 4%, and has broached those same changes with the San Jose, Calif.-based company, according to a person familiar with the matter. Starboard took the stake at least six months ago and recently has been talking to eBay about improving its operations and exploring the split, one of the people said.

In 2015, eBay spun off payment platform PayPal Holdings Inc., a successful acquisition that activist investor Carl Icahn deemed more valuable as a stand-alone business. EBay's stock has risen just 18% since the split and is down 17% over the past year. PayPal, meanwhile, has taken off, with its shares rising 134% since the split.

In a letter sent to eBay's board on Tuesday, Elliott also said the company should focus on revitalizing its core marketplace business, boost its margins and ensure it has the right leadership team in place. Elliott also suggested that eBay's core marketplace, if separated from its other businesses, could be sold to a private-equity firm or a strategic buyer eager to expand its online footprint.

The fund said it thinks StubHub, the popular ticket-reselling platform, could sell for between $3.5 billion and $4.5 billion and eBay's classified businesses for between $8 billion and $12 billion. Elliott also said the remaining marketplace business, before any improvements, could be worth about $15 billion.

EBay said in a statement Tuesday that it values its shareholders' input and will carefully review Elliott's proposals.

Elliott and Starboard, which aren't working in concert, are considered two of the most aggressive activist investors and both have shown a willingness to launch proxy fights for board seats at companies that don't heed their suggestions. The roughly one-month window during which shareholders can nominate directors for eBay's board begins next week.

EBay opposed Mr. Icahn's efforts when he surfaced as a shareholder in 2014 and urged a breakup, arguing that PayPal's potential was shrouded by eBay's conglomerate structure. At the time, the unit accounted for more than 40% of eBay's roughly $16 billion in annual revenue and was its fastest-growing segment.

EBay's leadership initially vowed to fight Mr. Icahn, saying its collection of businesses were more valuable together than apart. But following its own review, eBay spun out PayPal the next year.

EBay jumped 6.1% to $32.90 on Tuesday, for a market capitalization of nearly $32 billion. PayPal, which eBay bought in 2002 for $1.4 billion in stock, is now worth more than $105 billion.

StubHub, which eBay bought in 2007 for $310 million, accounted for about 14% of company revenue in last year's third quarter. The classified business, which operates outside the U.S. and allows users to buy and sell goods and services, made up about 12%. EBay is set to report its fourth-quarter results next week.

EBay got its start as a marketplace for selling goods and services in 1995 -- the same year that Amazon's Jeff Bezos launched operations of his online bookstore. For years, eBay dominated its niche, allowing sellers to auction goods to the highest bidder. But the novelty eventually wore off and Amazon, meanwhile, was inviting other sellers onto its platform and expanding well beyond books.

EBay has been working for years to redefine itself as shoppers increasingly turn to their phones, showing little patience for scrolling through thousands of listings. The company touts that 80% of items on its site are new, with the bulk sold at a fixed price rather than being auctioned. It has rolled out improved search features and personalized recommendations and reviews. It also recently launched aggressive marketing campaigns to shed its outdated image.

The company pressed brands to sell to consumers on its site, and it claims to have had some success. To better compete with Amazon and others, it has highlighted free and fast shipping and the ability for shoppers to make returns.

The steps to improve operations have led to some recent gains, including in the important measures of users and gross merchandise volume, or the total amount of sales on the sites. In the quarter ended Sept. 30, growth in active buyers accelerated to 4% year-over-year to 177 million, while gross merchandise volume was up 5% at $22.92 billion.

The company has also diversified away from its core marketplace with businesses like StubHub and Classifieds, as well as international acquisitions.

Chief Executive Devin Wenig also touted its plans to quickly build out a $1 billion advertising business -- something Amazon has done successfully.

"Given that we have a large, stable and successful business but must also build for the future, we're shifting our tactics to balance the needs of a habituated base of customers who are used to shopping on eBay in a certain way while pursuing an even larger base of potential customers who have different expectations," Mr. Wenig said on the company's October earnings call.

Still, the company warned growth would be relatively stable going forward -- a disappointment to investors who were expecting faster, double-digit gains.

Competition is stiff, as Amazon and other retailers fight for a bigger piece of the market. Amazon last year commanded 49.1% of U.S. online retail sales, according to eMarketer estimates, compared with 6.6% for eBay.

EBay differs from Amazon's selling operations in that eBay is a pure marketplace, facilitating sales while abstaining from selling goods itself. That means lower total revenue but higher profit margins.

Mr. Wenig has run the company since its split with PayPal, and the company has seen some turnover in its senior management in recent years.

"The proposal by Elliott to spin off assets is as much about the financial benefits as it is about bringing focus and execution to core marketplace," SunTrust Robinson Humphrey analysts wrote, noting the eBay's recent stock underperformance. "We are not surprised to see activists take a strong interest in eBay."

Write to Cara Lombardo at cara.lombardo@wsj.com and Laura Stevens at laura.stevens@wsj.com

(END) Dow Jones Newswires

January 23, 2019 01:48 ET (06:48 GMT)

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