Apparently it’s a bad day when Starboard Value sends you a letter. The activist investor group is well known for impatience and the dramatic demands it makes to the companies it invests in. In fact, Starboard Chairman Jeff Smith was named the “investor CEOs fear most” by Fortune in 2014. The group invests in eBay. And on Feb. 4, eBay got a letter from Starboard amping up its pressure to bring eBay back to its core business by selling its online classified unit.
Starboard was the driving force behind getting eBay to sell off StubHub last year for $4.05 billion. It has been urging eBay’s executives to spin off classifieds for about a year. Rumors abounded last September that German publishing house Axel Springer was making an offer. That never materialized. Starboard is losing its patience even though eBay’s online classified business delivered revenue of $269 million in Q4, up 3 percent on an as-reported basis and up 6 percent on an FX-Neutral basis.
Competition in the global online classifieds market is dominated by local ad powerhouse Naspers Group, eBay, Inc. and Craigslist, Inc. (in the US). Ad spending in the classifieds segment should amount to $2.2 billion in 2020 and is expected to show an annual growth rate (CAGR 2020-2023) of 3.2 percent, resulting in a market volume of $2.4 by 2023, according to Statista.
Starboard says the company should focus on its core business to build shareholder value.
“For much of the last year, the Company attempted to rationalize maintaining the current portfolio structure by alluding to the fact that eBay gains ‘a few hundred million dollars’ worth of trade’ by having Classifieds in the eBay portfolio,” the letter stated. “While that is a compelling soundbite, when we apply the core Marketplace take rate to that value, it becomes inconsequential, especially in comparison to the potential value creation opportunity. In fact, an argument could be made that in the current structure, Classifieds is actually owned by a competitive business, hindering both the core Marketplace business and Classifieds. In many markets, Marketplace and Classifieds are competing for the same customers and same product listings. If the businesses were separate, both would be better equipped to attempt to acquire customers and grow without this complication.”
The activist investor group’s letter also refers to “frustration [that] exists across the shareholder base” saying eBay’s share price has “drastically underperformed” the broader markets over any time frame since its spin-off of PayPal in 2015. Starboard says the share price has declined by almost 10 percent since last year, despite broader markets trading up 19 percent to 39 percent during the same period.
eBay has not officially commented on the Starboard letter. Starboard has requested a board meeting to discuss the matter.