EBay Inc. has been here and done this, but the sequel may not have the same payoff.
In 2014, activist investor Carl Icahn campaigned and hounded eBay to spin off its faster-growing PayPal payments business. Hedge fund activist Dan Loeb of Third Point joined in, and they ultimately prevailed in convincing eBay to sell PayPal in a maelstrom that eventually led to the exit of Chief Executive John Donahoe.
Donahoe’s replacement was Devin Wenig, who just faced the same gauntlet and took his leave from the e-commerce company on Wednesday. This time, Elliott Management and Starboard Financial are pressuring eBay to spin off StubHub and Classifieds, a move that Wenig – like predecessor Donoahoe when Icahn first came after PayPal – disagreed with, even as the activist’s new representatives on the board fought for the move.
“In the past few weeks, it has become clear I was not on the same page as my new board,” Wenig wrote in a tweet thread Wednesday indicating that his departure will be paving the way for the sales of its two non-core business units.
In the past few weeks it became clear that I was not on the same page as my new Board. Whenever that happens, its best for everyone to turn that page over. It has been an incredible privilege to lead one of the worlds great businesses for the past 8 years.
– Devin Wenig (@devinwenig) September 25, 2019
While up till now, the stories seem similar, there is one big difference: PayPal was considered the crown jewel of eBay by many investors at the time, with its faster growth rate and high profit margins. But can the same be said for the two eBay businesses that the current group of shareholder activists are salivating over?
In the most recent second quarter, both businesses delivered single digit revenue growth: StubHub had revenue of $264 million, up 7% in the quarter, while Classifieds had revenue of $271 million, up 5%, while eBay’s core marketplace revenue of $2.2 billion was pretty much flat, up 1%.
Elliott Management argued in its letter in January to eBay’s board that these two assets are worth more alone t han they are as part of eBay. But their growth pales in comparison to the double-digit revenue growth rates PayPal was exhibiting at the time of the spin-off. Revenue growth has slowed since then, but PayPal is still expected to grow full year revenue about 15% in 2019, per consensus estimates on FactSet.
There are reasons to be frustrated with Wenig, whose work on eBay’s core marketplace has been going on with slow results for at least three years. The biggest effort, data restructuring aimed at getting eBay listings included in broader search engines like Google, has frustrated users and not made a huge dent in improving revenue growth.
Wenig might be right, though, that selling off two businesses will not help the company much beyond a short-term infusion of cash that likely won’t be enough to truly matter. And Wenig should land on his feet – Donahoe certainly did, taking over the CEO helm at booming software company ServiceNow Inc. , as did eBay’s CFO at the time of the last activist-sparked selloff, current Intel Corp. CEO Bob Swan.
For eBay, it’s highly unlikely that spinning out smaller assets with slower growth will work out as well for investors as the PayPal move did. Instead, the focus – as it was for Wenig – should be on making eBay’s core marketplace better at what it does well: being the world’s largest garage and estate sale.
At this point, eBay is what it is, a unique marketplace that needs a lot of improvements. Investors and executives need to focus on how to improve it, not on acting like one of its sellers and continuously hawking goods that it bought a few years ago.