We all know only too well the fall out that comes from shareholder activists – the last time they got involved with eBay it resulted in the eBay breakup with PayPal and the ramifications of that are still going with eBay starting to roll out eBay Managed Payments in the US.
Now, Elliott Associates, who own shares in eBay worth about $1.4 billion in market value (representing 4% of eBay making them one of the company’s largest investors), is unhappy with the way that the company is managed. Elliot have written to members of the eBay expressing their disappointment in eBay’s performance and suggesting carving up the company in a second eBay breakup, selling business units off and stripping out layers of management.
With sellers still wondering what the eventual shape of payments on eBay will look like when they roll out perhaps the last thing they need is more uncertainty from another eBay breakup. It’s not outside the realms of possibility that the eBay marketplace itself could be acquired if the company is spilt into enough bite size chunks.
Elliott say that there is a uniquely compelling value opportunity at eBay and that they have enormous amount of respect for eBay as an organization, for its history, and for the community that comes to work, sell and shop on eBay each day. They just don’t think that the eBay management are as focused on building eBay for the future as they could be.
The plan involves everything from selling off Stubhub and eBay’s Classified businesses to consolidating offices and cutting out costs. Elliott Associates say that ‘eBay suffers from a deeply depressed valuation due to its history of misexecution’ and that eBay can unlock substantial value today by refocusing on its core business.
So the plan is to strip out all the business units that aren’t material to the main eBay marketplace, strip out management, staff and offices to cut what Elliott Associates consider to be a bloated organisation to streamline costs and put directors and staff in place who are laser focused on the marketplace, revitalise it for once and for all and get it growing much much faster.
In reality this is a damning indictment on eBay CEO Devin Wenig’s management of the business. Devin has been in place as president of eBay’s Global eBay Marketplaces Business Unit since 2011 and become CEO in July 2015. Devin always said that the eBay turnaround was a multi-year project which is still ongoing but it would appear that, at least some, investors consider that four years is long enough and the results aren’t coming fast enough.
Devin certainly has a problem with eBay and it’s not an easy one to solve. eBay know that compressing listings with eBay Catalogue and the new product based shopping experience is attractive to new eBay buyers. That indicates the direction that eBay needs to go if they’re to pick up fresh buyers and get them hooked on eBay. The trouble is that existing buyers and sellers almost universally hate the product based shopping experience and rolling it out too quickly will alienate eBay’s existing base – it’s a lose lose situation.
The letter from Elliott Associates will put massive pressure on eBay as their fourth quarter results are due to be presented to investors on the 29th of January in a week’s time. If their fourth quarter was anything less than stunningly better than investors predict then it could be just the trigger needed to start another eBay breakup.
Elliott Associates 5 point plan for eBay
I. A Comprehensive Portfolio Review
StubHub and eBay’s portfolio of Classifieds properties represent high-value, strategic assets that are worth meaningfully more than the value currently being ascribed to them as part of eBay. 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.
II. Revitalizing Marketplace
eBay’s Marketplace is a strategically valuable asset that has weathered prolonged, self-inflicted misexecution. Management should turn its singular attention to growing and strengthening Marketplace.
III. Operational Improvements and Margin Expansion
Today eBay suffers from an inefficient organizational structure, wasteful spend and a misallocation of resources. By increasing operational efficiency, eBay can free up capital to invest in capability- and revenue-enhancing activities.
IV. Appropriate Capital Allocation
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.
V. Effective Leadership and Oversight
eBay must ensure that it has the right, most experienced talent in place to oversee the portfolio review and operational improvements. Management buy-in and Board oversight of the Plan will be paramount to its success.
eBay response to Elliott Associates
“The eBay Board and leadership team regularly engage with our shareholders and value their input. We are focused on delivering value for our shareholders, customers and employees by driving the best choice, the most relevance and the most powerful selling platform to deliver growth. Accordingly, we appreciate Elliott’s recognition of the strength and power of eBay’s business and will carefully review and evaluate Elliott’s proposals. We look forward to the opportunity to engage with Elliott, as we do with all shareholders.”
– eBay Inc