The value of eBay (NASDAQ:EBAY) stock keeps increasing as the company gets smaller.
Credit Starboard Value and Elliott Management, hedge funds that took stakes in the company last year.
Their cunning plan is coming to fruition, as eBay sells its classifieds unit. The sale comes just a few months after completing the sale of StubHub, its ticket broker. The key is in the release announcing the StubHub sale. Nearly all the net proceeds will go into buying back eBay stock.
The Classifieds Deal
For the classified site eBay is getting $2.5 billion in cash and 540 million shares in the site’s buyer. That’s a Norwegian company called Adevinta, which already ran online marketplaces in Europe and Latin America.
The majority owner of Adevinta is Schipsted, a Norwegian publisher founded in 1839. That company will now have the largest online classified business in the world, covering 20 countries.
The main eBay business, meanwhile, has gotten a boost from the novel coronavirus. This increased online purchasing and moved more merchants toward online selling. Since the start of the year eBay stock is up 56%.
The Elliott-inspired transactions represent the end of a long process for eBay, which was born in the 1990s as an auction site. The first half came in the 2000s, when eBay bought PayPal (NASDAQ:PYPL), Skype, Craigslist and StubHub with cash generated by its online auctions and e-commerce.
The PayPal purchase may be best known now for giving Elon Musk of Tesla (NASDAQ:TSLA) the start of his fortune. PayPal was spun off in 2015 and is now worth $208 billion. The Craigslist purchase started a long soap opera that eventually resulted in eBay selling it back. Skype cost $2.6 billion but brought $8.5 billion six years later. StubHub cost $310 million in 2007 and brought in over $4 billion.
School for Scandal
Along the way, eBay gained a reputation for litigiousness and viciousness, climaxing in a campaign of stalking against ECommerceBytes, a blog site that criticized it.
A statement from eBay senior vice president Jordan Sweetnam posted last month claimed the company was shocked and saddened by the scandal. But as Wired wrote, the officials involved “did not execute their plans in a vacuum.” The scandal has given critics ammunition for attacks not just against eBay, but the entire culture of Silicon Valley.
Since the scandal, eBay has hired a new CEO, Jamie Iannone, from Walmart (NYSE:WMT). It distanced itself from former CEO Devin Wenig and fired the employees involved. But even that now smells a bit. Wenig’s departure was originally cast as a dispute over the sale of StubHub.
The Bottom Line on eBay Stock
What’s left is the eBay site itself and its new payments business, finally unwound from any relationship with PayPal. This includes a “managed payments” offering that amounts to handling personal loans on behalf of sellers.
Fixing the company’s reputation is now Iannone’s job. He spent a decade at eBay before jumping to Walmart, where he was chief operating officer of its eCommerce unit. Iannone had helped grow the online sales of Walmart’s Sam’s Club warehouses.
Iannone must repair eBay’s reputation and manage its stake in Adevinta, which could still be sold to raise more cash.
A month before a seventh defendant involved in the campaign against ECommerceBytes was charged, Iannone presided over eBay’s annual meeting. “Integrity is the foundation of how I work, and as CEO, I will hold our leadership team and all employees to this same standard,” he said.
Iannone needs to both do that and grow the business beyond $10 billion in annual sales, to justify eBay’s $40 billion valuation. Remember, too, that while you’re buying, the hedge funds are taking profits.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT.