Starboard Value LP today placed more pressure on eBay to sell off its classifieds unit. The investment group and its affiliates own more than 1 percent of outstanding common stock of eBay, Inc.
In the letter the investment group delivered to Thomas J. Tierney, eBay’s Chairman of the Board, and Scott F. Schenkel, eBay’s Interim Chief Executive Officer, with copies to the Company’s Board of Directors, it said:
“Following our initial engagement with eBay in 2018, we were pleased with the announcement of cooperation agreements among Starboard, Elliott Management, and the Company in March 2019 that resulted in the immediate placement of two new directors on the Board of Directors (“the Board”), as well as the intended appointment of a third new director and the departure of one incumbent director. In conjunction with this announcement, eBay also announced an Operating Review to “target operational excellence…in order to drive enhanced revenue and operating income growth” and a Strategic Review “of its asset portfolio, including but not limited to StubHub and eBay Classifieds Group.” It has been almost twelve months since these commitments, and there has not been enough progress.”
Underperforming Share Price Root Cause of Discontent with eBay
The root cause of the squabbles between investment groups that pushed for StubHub and the Classified’s Business unit sales has been the continuing underperforming share price of eBay’s stock.
While eBay continues to generate profits from its operations, including the core marketplace business, it has done so by squeezing out more profit from existing sales.
This is highlighted int he letter from Starboard “…the Operating Review targets anticipate only limited margin expansion while revenue growth has continued to decelerate…”
Small sellers are complaining that much of these “improvements” which include bringing a payments solution in-house again after its separation with PayPal and promoting eBay listings through additional advertising placements on the platform are not solving the core issues at eBay.
The marketplace has also suffered from the fallout of the new sales tax requirements placed on it by over 2/3 of states in the U.S.
Investor Interest and Seller Interest Appear to Align
For once, it appears major investors and sellers agree that eBay needs to change. Both groups want eBay to refocus on making the core marketplace competitive again in today’s ecommerce space.
While some long-time sellers may wish to go back to an auction-style focused marketplace of 20 years ago, the reality is eBay as a marketplace has to compete with Amazon and other large online retailers.
It is clear that investors believe the only way this will happen is for eBay to divest itself from business units that do not support the core marketplace.
While investors have not used the word “distractions” to identify the other business units, by pushing for divesting from them, they clearly see the non-core marketplace business units as “distractions” to growing marketplace.
With StubHub already sold, the first “distraction” has been sold. Starboard is pushing for the sale of the next major “distraction” in the eBay world “…we believe Classifieds must be separated, and a more comprehensive and aggressive operating plan must be put in place to drive profitable growth in the core Marketplace business.”
If both major “distractions” to the core marketplace are spun-off, this should give a new CEO and management team an opportunity to revitalize and concentrate on the core operations to allow small and medium-sized businesses to better compete in today’s ecommerce space.
The full letter from Starboard to the eBay board is available here.
Do you agree with Starboard that the only way to fix the core marketplace is to sell off other business units?
Please use the comments section below or head over to our Facebook Group for Small Business Sellers and interact with other small business owners.