E-commerce site eBay (NASDAQ:EBAY) is selling its ticket resale unit, StubHub, for $4.1 billion in cash. The buyer is Viagogo, a British company. StubHub management seems excited about the deal. Viagogo CEO Eric Baker had previously co-founded StubHub.
Activist investors Elliott Management and Starboard Value have been lobbying eBay to sell StubHub, and eBay’s classifieds business, for a year, saying the moves could double the value of the company.
While eBay stock popped 5% on the news, it was able to hold less than half that gain for the whole day, closing at $35.85 per share. Investors took the StubHub sale as their chance to get out on a high.
Dock of the eBay
The eBay site was founded in 1998. Founder Pierre Omidyar became a billionaire through the IPO of eBay stock. The resale site was an early leader in e-commerce, but then became a conglomerate, especially after buying PayPal (NASDAQ:PYPL) for $1.5 billion in 2002.
By the time eBay spun off PayPal in 2015, after prodding from Carl Icahn, it had become an unwieldy mess. But investors who were in at the time of the split, receiving a PayPal share for each eBay share they held, have since seen a 200% gain in their PayPal holdings.
The Viagogo deal was spearheaded by interim eBay CEO Scott Schenkel. The board deposed long-time CEO Devin Wenig in September. Growth at the company has stopped. September revenues of $2.6 billion precisely matched the same quarter a year ago, but with less than half that quarter’s net income.
The eBay business model of a centralized marketplace has been losing traction to Shopify (NYSE:SHOP), which sells software through which sellers can market under their own names.
The Regulators Are Coming
StubHub also needs some tender loving care.
Sports teams and leagues have been taking over their own resale businesses. Many have licensed “authorized” resellers. It’s part of a long-standing pattern.
Teams didn’t see a market in streaming their broadcasts until Broadcast.com did it in the late 1990’s. In the same way, teams have come to see the secondary market as another profit center.
Resale automates and legitimizes the old scalping business. It was supposed to give fans who couldn’t make a game or concert a way to cash out and keep seats filled. But technology let the scalpers bypass the security software of sales sites, grabbing seats for popular events before customers got a shot at them. This was supposed to be fixed by the Better Online Ticket Sales Act of 2016. StubHub’s Sukhinder Singh Cassidy has called for promoters to be more transparent on their initial ticket sales.
Now the House of Representative’s Energy and Commerce Committee is seeing other scams, like hidden fees, fake sellers and other forms of deception. They’re demanding information from the leading players, including StubHub, and may follow up with a hearing. Ticketmaster, the leading ticketing agency, has also closed its resale sites in Europe, placing all secondary sales under its corporate umbrella.
The Bottom Line on eBay Stock
The StubHub deal looks like a good one for eBay, but it’s running out of units to hive off to juice shareholder returns.
The next step for eBay must be to improve its website, which currently looks at least 10 years old. While it’s great to get a bargain, a second-hand shopping site that isn’t kept up to date is a thrift store. Don’t buy stock in a thrift store.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
