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It's a pretty good bet that - in the coming months - we'll see important changes at eBay (NASDAQ: EBAY ) that will affect EBAY stock.
The main reason for the coming changes is that the company has two major activist shareholders: Elliott Management and Starboard Value. Elliott Management has the largest stake, with $1.4 billion of eBay Inc stock (or more than 4% of the outstanding shares) and has been the leader when it comes to pushing for action. In a letter to management, the investment firm called for spinning off StubHub and the online classified businesses to unlock value for the owners of EBAY stock.
This week, we got some ideas about the restructuring moves that EBAY plans to make. The company will shut down its eBay Commerce Network. effective May 1, according to a report in Techcrunch . eBay Commerce is an ad network that allows merchants to advertise on third-party sites. However, it really did not get traction, as there are only 1,000 publishers in the network.
As a result, getting rid of the eBay Commerce Network looks like a good move for EBAY and EBAY stock After all, the network has been around since 2013, so there was more than enough time to attempt to build it up. It also is important to note that the digital ad market is fairly saturated, with mega operators like Alphabet (NASDAQ: GOOGL , NASDAQ: GOOG ), Facebook (NASDAQ: FB ) and Amazon (NASDAQ: AMZN) dominating the sector.
Yet EBAY is not getting out of the ad business. Instead, it appears that the company is going to target much bigger revenue opportunities in the category, such as ads on the eBay properties as well as affiliate programs.
EBAY Stock and Activist Shareholders
It did not take long for Elliott Management and Starboard Value to make a deal with EBAY. And for the most part,it appears that the agreement will produce positive results for EBAY and EBAY stock.
First of all, there will be a significant change in the company's capital allocation . Keep in mind that eBay plans to return $7 billion to shareholders over the next two years, including a quarterly dividend .
But the settlement also includes a serious focus on restructuring operations. That includes a deep-dive review of the company's assets and a streamlining of its operations, which means consolidating the marketplaces under one global leadership team.
eBay's revenue growth has been unimpressive during the past few years, especially given the ongoing changes that affected e-commerce and mobile. eBay's efforts to become more focused on its core marketplaces should help rev up its top line thereby boosting EBAY stock.
Also positive for EBAY's results and EBAY stock is the fact that the company has agreed to bring Elliot partner Jesse Cohn and Marvell Technology (NASDAQ: MRVL ) CEO, Matt Murphy onto its board. A third independent director is expected to be put in place later in the year.
The Bottom Line on EBAY Stock
EBAY is no stranger to activist investors. Back in 2015, Carl Icahn agitated for the spinoff of PayPal (NASDAQ: PYPL ). The move did unlock lots of value for PYPL, but EBAY stock mostly lagged.
EBAY has some major advantages. The company has global scale, with 179 million active buyers. It also has a thriving mobile business, as its app has been downloaded over 447 million times. EBAY has been moving away from auctions, which are mostly a niche business, and focusing on new product offerings.
And in the wake of the increased influence of Elliott Management and Starboard Value, EBAY should have more urgency to realize more value from its assets. No doubt, that should bode well for EBAY stock, especially since the valuation of eBay Inc stock remains fairly reasonable. The forward price-earnings multiple of EBAY stock is only about 12.5.
Tom Taulli is the author of High-Profit IPO Strategies , All About Commodities and All About Short Selling . Follow him on Twitter at @ttaulli . As of this writing, he did not hold a position in any of the aforementioned securities.
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