Dotgone: ‘Fat and happy’ eBay seemed untouchable - big mistake
A shadow of its former self, the dotcom icon is on the verge of a breakup as Amazon surges ahead
Ryanne Hodson and her partner left their home in San Francisco and their tech industry jobs in 2008 as the US economy crashed, and moved across the country. In rural Virginia they found a more affordable standard of living, but also a new calling: selling items on eBay.
Hodson’s online store sells thousands of dollars a week worth of vintage clothing, antiques and artwork she finds at secondhand shops and markets. She describes the online bazaar as “the perfect place to sell that stuff”, but concedes that independent sellers have their gripes: eBay’s competition with Amazon means it has pressured them into providing free delivery and returns, and in 2018 the company doubled her monthly fee to $300. “They have fees all over the place. Even after expenses it’s still better than working at an office though,” she says.
Hodson’s operation was the eBay ideal when the website was set up in 1995 – a way for the scale of the internet to create a global car boot sale (in keeping with its secondhand credentials, the first item sold on the website was a broken laser pointer). Today, the site is a very different proposition. Four in five items sold on it are now new, and major retailers such as the US giant Walmart use it as a storefront. The company itself has become a global empire that includes the ticket reseller StubHub, the classified advertising website Gumtree, and motors.co.uk. For years, it owned the payments company PayPal, and in the past has owned Skype and a stake in the Indian shopping site Flipkart.
eBay itself remains the world’s second-biggest shopping website outside of China, behind only Amazon.
Globally, e-commerce is booming: 20% of all retail sales in the UK are now online, and 11% in the US. And yet, the company itself does not seem to have profited. From July 2015, the moment it separated from PayPal, until the end of 2018, shares rose just 4%. In the same period, the Nasdaq composite of tech companies rose 29%, and other online shopping companies such as Amazon and Etsy by significantly more. Meanwhile, eBay shares fell by a quarter in 2018 as it twice cut revenue forecasts.
In January, the activists struck. Elliott Management, the New York-based hedge fund, revealed a $1.4bn stake in eBay and demanded a break-up of the company. In an 18-page letter to eBay’s directors, Elliott accused them of mismanaging the company and said there had been a “profound loss of confidence”. Elliott and fellow activist Starboard Value, which has taken a 1% stake, called for the company to sell off StubHub and the classified advertising division that includes Gumtree.
Elliott’s Jesse Cohn claimed that StubHub could be sold for up to $4.5bn, double what it appears to be worth within eBay, and the classifieds business up to $12bn. If they are sold, he said, the core eBay business could find a willing buyer, perhaps to another retailer.
“As e-commerce penetration accelerates, it is clear that eBay’s unique buyer, seller and geographic breadth make Marketplace a highly attractive acquisition target for both financial and strategic buyers,” Cohn wrote.
A break-up followed by a sale to a bigger player would be a meek conclusion for the company that was one of the first names in online shopping, and especially when compared with Amazon, whose empire grows daily from cloud computing services to its own electronics, online video and advertising.
Sucharita Kodali, an analyst at Forrester, says eBay’s early growth meant it ended up resting on its laurels. “Because it was profitable it was fat and happy,” Kodali says. “They thought they had a perfectly good business of people buying used cellphones and they felt they were untouchable. That was their mistake. Amazon’s always invested in new things and they’ve been relentlessly focused on the customer; eBay, I don’t think, has ever been focused on the customer.”
According to Forrester, just 17% of online consumers shopped with eBay in the past three months, down from 26% in 2013. The respective figure for Amazon is about 65%. So when the activists came, eBay was vulnerable, and had to listen. Just seven days later, the company announced its first dividend. At the beginning of this month it announced a strategic review that would include considering whether to sell StubHub and the classifieds business. In addition, it would appoint two new independent directors: Elliot’s Cohn and Matt Murphy.
The activists have agreed not to publicly disparage eBay or any of its directors, and to vote for their re-election. eBay insisted that it had not made any decision on selling off the assets, but the news was well received. Both sides now appear to have reached a truce, and relations between eBay chief executive Devin Wenig and the activists are believed to be cordial.
Last week, Elliott took offline its “enhancingebay.com” websites that had campaigned for change. Bids are understood to have already come in for the assets that are now on the block.
Many questions about eBay’s future remain, however. Though the company’s shares have risen since Elliott’s intervention in January, they remain well below what the activist has said they should be. Its existing executives are also likely to be less keen on the activist’s ultimate plan – a sale to a larger retailer or a private equity buyer.
Major US retailers such as Walmart and Target, or even China’s Alibaba, are often thrown around. eBay will need some major backing to wind in Amazon’s lead. That may not be far away.
– © The Sunday Telegraph