“We bought into eBay late last year because we think it’s undervalued by the market. It’s not so much that we think there’s an event or catalyst imminent, but relative to a lot of tech stocks eBay was being ignored by the market and there was a great valuation opportunity there.
“Management getting a prod from investors is perfectly appropriate, and perhaps some of those cost savings can come from headquarters. It would seem Elliott’s engagement has started off on a respectable note, and we would welcome them buying more shares and working constructively with management.”
eBay has been left behind by the FAANGs phenomenon, unable to match the growth of Facebook, Apple, Amazon, Netflix and Google-parent Alpha bet. Over the past five years, eBay has trailed the main tech indices by around 35 to 65 per cent, according to Elliott’s numbers.
Another shareholder, Perpetual’s head of global investments Garry Laurence, lent his support to Elliott’s objective.
“We own eBay and are supportive of Elliott’s proposal to spin out StubHub and the classified ads businesses. We don’t think the market is fairly valuing the company at the moment,” the Perpetual fund manager said. “Based on its valuation it is definitely one of the cheapest ecommerce companies globally.”
Elliott claims the stock is trading at just 12 times forecast earnings.
It’s not the first time eBay has faced an activist challenge. In 2014 eBay was taken on by Carl Icahn, culminating in the spin-off of PayPal as a separate company in 2015. Icahn converted his holding to PayPal shares upon the separation.
The Elliott letter, signed by partner Jesse Cohn, sought a meeting with the board. Mr Cohn said that his mother sells jewellery on the site, building a successful business over a decade.
Activist hedge fund Starboard also emerged as an eBay shareholder on Tuesday, but has not publicly articulated its position yet.
To arrive at Elliott’s 2020 valuation of $US63 a share, the investment manager ascribes $US1 a share to the value of dividends, $US6 to the ticket re-seller StubHub, $US13 to classifieds (which owns Gumtree in Australia) and $US42 to the marketplace business. Without the benefit of selling StubHub and classifieds, Elliott’s base case valuation is $US55 a share on a 24-month view.
eBay owns the world’s second-largest e-commerce business outside China. But the platform has been plagued by technical issues, putting off sellers and leading the activist to call for an investment in technology and reliability.
“The implied value of the core business is just 5.7 times EBITDA, rendering it cheaper than many companies in terminal decline or operating in secularly challenged industries,” the letter said.
from A Viral Update http://bit.ly/2FVm6QX
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