Starboard call for action on eBay Marketplace and Classifieds sale

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In the same week that a $30 billion bid for eBay came to light, Starboard, investors holding 1% of eBay stock, fired a letter to Thomas J. Tierney, eBay’s Chairman of the Board, and Scott F. Schenkel, eBay’s Interim Chief Executive Officer, calling for eBay to return to its roots in targeting its historical core buyer universeof “self-expressionists and treasure hunters”.

After nine months of “Strategic Review” which has already seen the fall of the eBay CEO Devin Wenig, Starboard say that eBay are moving too slowly and once again call for the sale of eBay Classifieds business along with a new direction for the eBay marketplace.

“We believe eBay has an opportunity to create significant shareholder value through the separation of eBay Classifieds Group (“Classifieds”), and that at peer trading levels, the implied valuation of the core Marketplace business (“Marketplace”) is extremely attractive, with opportunities to improve revenue trends, execution,and profitability in the core business….

…We were pleased to see the announcement of the sale of StubHub, and we believe that eBay has an opportunity to create significant additional value for shareholders today through the separation of Classifieds.
– Starboard letter to eBay

Citing eBay’s resistance to separate its Classifieds business Starboard say they are disappointed and want to see either a sale or simply spinning off Classifieds as a separately traded company and they don’t really care which option eBay picks but, with eBay in their last earnings report saying it’ll be the middle of the year before a decision is announced, Starboard are losing patience and saying it’s time to step up the time line and act now.

There is the tricky problem of who would be willing to stump up anything up to $10 billion to acquire eBay Classifieds, and if anyone willing to buy would pose a threat to eBay’s core business, especially in the area of eBay Motors which are (at least in the UK and Australia) linked through eBay Motors, Gumtree and Plus, the CMA are already looking at the potential sale of StubHub and various countries around the world could similarly want to consider if a sale of eBay Classifieds to a competitor would create an imbalanced market from a competition perspective.

What’s more encouraging for some sellers from Starboard’s letter is their view of the remaining eBay marketplace. Assuming a sale of eBay marketplaces doesn’t take place, they believe eBay could once again become the treasure hunters paradise for the unique, one off and unusual with less emphasis on brand new products.

“We also believe eBayshould return to its roots in targeting its historical core buyer universeof “self-expressionists and treasure hunters”, who are seeking unique, hard-to-find, or value-oriented items. In addition, we believe there is untapped market opportunity in bringing the eBay platform to existing marketplaces that have historically not utilized an online platform to drive commerce.We believe that these are areas in which eBay can find success as an online marketplace. This focus should also enable eBay to increase its assortment from product areas that have historically had higher take rates and continue de-emphasizing the lower quality GMV that eBay focused on as it began emphasizing its assortment of new, in-season merchandise over the previous few years.”
– Starboard letter to eBay

However Starboard are also looking for margin expansion (more fees for the same amount of sales) saying that eBay can further improve revenue trends by executing on growth opportunities with its advertising initiative and Managed Payments. Managed Payments is an opportunity for eBay to grab fees previously going to PayPal, with a net even or even small saving for sellers. Advertising mainly means paying more fees for visibility but with no guarantee of more sales for sellers – there is little doubt that eBay Promoted Listings works, but the question remains unanswered if it’s just moving a sale from one seller to another and that’s a hard suggestion to refute all the time eBay GMV isn’t growing.

Requesting a meeting with the board, Starboard emphasis that they like the eBay marketplace saying “However, as a pure online marketplace, we believe eBay’s core Marketplace business is fundamentally superior to these businesses [Stubhub and eBay Classifieds] and is capable of producing meaningful earnings growth, cash flow, and return of capital to shareholders over time“. As a seller, we wonder if you care about meaningful earnings grwoth and returning capital to shareholders or if you would prefer double digit growth and perhaps a sale of eBay to enable private ownership to enable eBay to press a reset button and totally revamp the entire marketplace?


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