Jesse Cohn did not have to stray far from home to find a line of attack against eBay. The main argument of the activist’s ace investor is that the company has ignored the potential of its core online marketplace. It is a venue where Mr Cohn’s mother has been a jewellery merchant for a decade.
The hedge fund on Tuesday announced a 4 per cent, $1.4bn stake in eBay stating that the company could be worth twice its current value. The US online group has other units, including ticket re-seller StubHub and a classified ads property. Elliott believes these would fetch premium valuations if sold off.
The activist is persuasive in his explanation of how eBay has fallen short. Turning the core company around will be trickier in practice, regardless of whether current or new management gets the chance to try.
At least eBay has developed a skill for identifying great adjacent businesses. Under pressure from Carl Icahn, it separated PayPal in 2015. The enterprise value is now $100bn. Ebay itself is worth just $34bn. Elliott argues half of that should be ascribed to StubHub and the classified ads unit. The effective ebitda multiple of core eBay would then be less than six times.
Shares in eBay are down 15 per cent in the last year. The total dollar value of commerce in its marketplace grew just 5 per cent in the latest quarter. Elliott wonders how that figure can be so low if e-commerce globally is growing at 20 per cent and upstarts like Etsy and Wayfair have emerged as niche but buzzy online sellers.
Ebay has 177m active buyers — just a fraction of the global online market. But only Amazon is ahead among US internet retailers. If it were easy to turbocharge growth, eBay would have done so already.
Expect eBay to sell or spin off its valuable subsidiaries. Eventually it will be pressured into selling the core business too. A laborious turnround will then be somebody’s else’s problem.
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