eBay Leaving Investors Bruised – Is It In Trouble?
Many investors are wondering is eBay Inc (NASDAQ: EBAY) worth buying. In the last days of November, news surfaced that eBay is selling StubHub for $4 billion in cash. StubHub is being returned to its co-founder that is now the CEO of Viagogo.
Not to create a confusion, this is a very good ROI since eBay received 10 times more comparing to the $310 million it paid back in 2017. But what this means for eBay's future and whether it was a good decision is an entirely different matter.
Cash Problems?
Definitely no. The company has $900 million in cash and generated almost $3 billion in free cash flow over the 12 month-period. So, the e-commerce company is definitely not bleeding nor in any foreseeable danger in running short on cash. But the fact that they didn't explain any motivation or future plans for all this extra cash, many questions were raised.
Moreover, CEO's statement was very ambiguous, only saying that this transaction will maximize the company's long-term value for shareholders but not at all explaining how it can contribute to future growth or value creation.
Succumbed To Pressure?
Now here is a valid concern. Hedge fund Elliott Management has invested $1.4 billion in the company and has clearly expressed their opinion earlier this year that StubHub has more strategical value than what they are being ascribed as part of eBay. If that is true, first of all, it is a critic of eBay's management since it implies that they did a poor job when it comes to asset management, and this is definitely a concern.
If untrue, it means Eliott Management influenced this decision and this is also a concern as we cannot forget that StubHub contributed 12% to eBay's net revenues. And cutting off a significant part of one's business is nothing less than a big deal.
Fundamental Analysis
On a brighter note, after accounting for expenses, eBay is generating more profit than its peers. Also, metrics suggest that the company is doing well in using its earnings to generate returns. It has healthy quick and current ratios indicating good ability to meet its short-term obligations. While it has heavy long-term debt to equity, the majority of its performance metrics show that it is a solid investment option. Moreover, Wall Street expects its stock price to rise over the next 12 months. But this only makes their sale decision even more confusing!
Even its fierce rival Amazon.com, Inc. (NASDAQ: AMZN) is facing competition with its AWS that changed the way businesses use technology just like Apple Inc (NASDAQ: AAPL) disrupted the world with its iPhone. But Microsoft Corporation (NASDAQ: MSFT) who seriously challenged its invincibility by winning the Pentagon deal, Google (NASDAQ: GOOGL) and IBM (NYSE: IBM) are all catching up and grabbing a slice of the growing market. The Chinese giant Alibaba (NYSE: BABA) just added a partnership with Manchester United (NYSE: MANU) on Friday, going even further in offering consumers a unique online shopping experience.
Walmart Inc (NYSE: WMT) is slowly but surely also fortifying its presence online and therefore becoming one of eBay's biggest competitors. So, eBay has no room for ambiguity in its strategy as a small mistake will be surely used as an advantage by its competitors.
What Next?
It remains unclear how will this sale help remedy eBay's growth problems. And without StubHub, eBay needs to find another asset to manage that can add value to its business and hopefully, help it grow. The question remains where is this e-commerce company headed and without a clear path to long-term growth, many further questions are raised as history has taught us no company is invincible.
The company's next scheduled earnings release will be on Tuesday, February 4th 2020.
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