Despite eBay‘s announcement that the would return more money to Investors through the introduction of their first ever Dividend payments starting in March and and increase share buy back program, this hasn’t been enough to appease Elliott Associates and stop their suggestion for another eBay Breakup.
Elliott’s fourth point in their letter to eBay stated that ‘eBay is a mature and highly profitable business that should continue to return substantial capital to shareholders, especially given the significant earnings growth contemplated under the Plan‘ and it would appear that the steps eBay announced don’t return anywhere near the level of returns to investors that they would like to see. Elliott’s main contention is that eBay is worth more broken into pieces than it is by retaining the StubHub marketplace and eBay Classifieds group alongside the marketplace business.
The main problem for eBay is that when a tech firm is growing fast Investor will be quietly satisfied with returns based on the increase in stock price. When growth slows and stock prices languish companies can keep investors satisfied with dividends, but based on eBay’s share price of around $34.00, a dividend of $0.14 per share is a relatively low rate of return in investor terms – about 1.6% annual yield – certainly it’s not been enough to excite Elliott. The issuing of a dividend is tantamount to an admission that stellar growth isn’t in the offing.
As was the case with activist investor Carl Icahn who eventually orchestrated the eBay/PayPal split, it’s unlikely that Elliot will go away and although eBay downplayed his suggestions it only took a couple of months before the PayPal spinoff become inevitable. It remains to be seen if Elliott’s efforts will result in a similar eBay Breakup with StubHub and the eBay Classified group being spun off, but by the end of the first Quarter of 2019 it will probably become clearer one way or another.
eBay declined in advance to discuss Elliott’s letter in their earnings call.
Elliott Statement on eBay Earnings
“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 Associates