EBay Inc (NASDAQ:EBAY), the iconic online auction marketplace that emerged in e-commerce’s nascent days, will never be the same again. In fact, the new-look EBAY stock may more closely approximate the daily deals site Groupon Inc (NASDAQ:GRPN) than Amazon.com, Inc. (NASDAQ:AMZN) by the end of this year.
That’s because EBAY stock succumbed to intense lobbying from legendary corporate raider Carl Icahn last year, and agreed to spin off PayPal, its successful payments system, later this year.
eBay also announced several other changes in its corporate structure recently, as it prepares to begin a new, less promising chapter in its corporate life.
Spinoffs Won’t Help EBAY Stock
While eBay’s marketplace division has always been the largest part of its business by revenue, PayPal’s growth has far outpaced the marketplace division in recent years. EBAY stock also boasts a third component: its eBay Enterprise unit, an e-commerce and interactive marketing business. And guess what? The enterprise unit is growing much faster than the marketplace division, too.
Which is why — brace yourself — eBay is now considering spinning off that division as well. That would further redefine EBAY stock as a floundering prospect with its best days behind it.
Consider a few brief facts about each of eBay’s major divisions and you’ll see why a stripped-down EBAY stock won’t look too enticing to investors:
- Marketplaces: Third-quarter revenue of $2.33 billion, 1% higher than a year ago. Gross merchandise volume rose 2%.
- PayPal: 3Q revenue of $2.16 billion, growth of 18%. Net total payment volume increase of 24%.
- Enterprise: 9% growth, for $443 million in sales.
Why not just keep Enterprise, you might ask? Well, even though eBay bought the division less than four years ago for $2.4 billion, CEO John Donahoe essentially feels a sale or eBay Enterprise IPO could unlock more value for current eBay stockholders, saying in a press release on Wednesday that…
“Enterprise is a good business but it has become clear that it has increasingly divergent opportunities and limited synergies with eBay. This move will help both businesses focus on their respective priorities moving forward.”
Reuters recently cited experts in the field who agree, believing that eBay Enterprise could attract all sorts of bids in the case of a sale. Salesforce.com, Inc. (NYSE:CRM), International Business Machines Corp. (NYSE:IBM), Demandware Inc (NYSE:DWRE), and Adobe Systems Incorporated (NASDAQ:ADBE) are all legitimate suitors, the report said.
The New eBay Won’t Look Pretty
With the new-look eBay to be loaded up with $7.6 billion in debt and just $2 billion in net cash compared to PayPal’s $5 billion in cash and zero-debt load, I don’t blame eBay for wanting to raise capital any way it can. The company also announced plans to lay off 7% of its workforce, or 2,400 people, a cost-cutting initiative to make the company leaner before it changes forever.
And eBay’s strategy for reigniting organic growth going forward? Targeting “avid” shoppers who are hungry for deep values. That means it’s focusing on eBay Deals, which is essentially a more gadget-focused version of GRPN. Good luck with that, eBay.
GRPN stock is off more than 70% since going public in 2011 as increasing competition and questionable accounting practices ravaged its shares.
If you own EBAY stock, I can see where you’re coming from. But when the company strips itself bare and auctions off its own finest assets, don’t be left holding EBAY shares.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.