StubHub Sale Signals eBay’s Refocus On Core Business

eBay on smartphone

Will 2020 mark the year that eBay is refashioned into a pure — or at least purer — play on the marketplace model?

That path seems a bit smoother now, but heavy lifting lies ahead.

eBay, faced with tepid growth in active sellers, and pressures on top line growth for its core business, has just taken a big step in its ongoing review of what’s working and what needs to change.

To that end, eBay said Monday (Nov. 25) that it will sell its StubHub ticketing operations to Viagogo Entertainment Inc., an online ticket reseller based in Switzerland, for $4 billion.

In terms of the particulars of the deal, Viagogo operates as an online marketplace for ticket resales, spanning sports, music and entertainment events. The company has international presence; StubHub has made its mark in the United States. In the announcement, eBay said the combined ticket sellers will have reach into 70 countries.

(Interestingly, Viagogo’s chief executive, Erik Baker, is a co-founder of StubHub, and so he will, upon the deal’s closing, be reunited with the business.)

The writing has been on the wall for some time, and seemingly closes one avenue of activist investor concern that has been brewing since January of this year.

The investors, Elliott Management Corp., and Starboard Value LP,  said in January that the firm needs a comprehensive portfolio review and should turn, according to one activist letter, “its singular attention to growing and strengthening” the marketplace.

As a result, eBay said it would examine the sales of StubHub and its classified business.

Turning to the present, the fact that a deal would happen sooner rather than later was hinted at by eBay as late as last month. When it announced earnings, eBay promised more clarity on StubHub as it sought “the best path forward.” As reported in this space back then, eBay signaled that an announcement before the earnings release that would come in January of 2020.

And so here we are:

Beyond the 1,000 percent-plus headline return on that purchase price more than a decade ago, the sale fits squarely into the $3.5 billion to $4.5 billion range that Elliott said the business could fetch.

We note that the $4 billion to be received in the deal pads a cash position that had, at the end of the September quarter, $897 million in cash and cash equivalents, per Securities and Exchange Commission (SEC) filings, and $2.2 billion in short term investments.

Add in $2.3 billion in operating cash flow, and a manageable $518 million in short term debt, and the near term financial picture is certainly strong enough to weather any near (or even longer term) term macro shocks, slowdowns in consumer spending amid slower GDP growth.

What’s next? Well, Elliott Management has said that the classifieds business could be worth around $8 billion to $12 billion. No doubt this next carve-out with be in the crosshairs.

Boosting cash is especially important given the fact that by selling StubHub, the company is selling a business that contributed roughly 11.6 percent of the consolidated top line. Interestingly, the unit contributed only a bit less than 6 percent of the latest quarter’s total operating income, so the sale does not have a commensurate impact on cash flow.

The Heavy Lifting

Streamlined a bit, cash-rich and with StubHub soon to be in the rearview mirror, eBay now faces some heavy lifting as it upgrades the way its core platform works.

Consider the fact that, upon issuing forward guidance, eBay said it may report its first quarterly revenue decline in more than four years. The platform model, of course, has seen less than stellar sales of merchandise across the marquee marketplace. The blow may have been delivered in guidance that presages a decline in the fourth quarter of the year to $2.7 billion to $2.8 billion.

There already may be some traction for an upturn tied to a more focused marketplace model, but the road is a long one.

The company has, of course, been banking on becoming a payments intermediary. That’s evident in the latest quarter details that show the management payments offering — since launch the year before — processed more than $1.1 billion in payments for more than 20,000 sellers. The firm said $500 million of those payments were processed in the third quarter. The idea is that making payments easier — offering a range of options for both sides of the transaction — might help keep customers on the platform through an improved experience and shave costs a bit for sellers.

eBay has also stated that as much as 80 percent of the items sold across its platform are new, a nod to the fact that the company is shedding its online-auction roots. The recent emergence of Black Friday deals and the “Black Friday Preview” may help push consumer mindset beyond the auction — and may even help deliver a surprise when the next results are released. Time, as they say, will tell.