Icahn Might Regret Ever Selling eBay stock
Don’t discount eBay Inc (NASDAQ:EBAY), the world’s largest online auction provider. Over the years, the company, founded in 1995, has established one of the largest communities for buying and selling goods and services online and all over the world. eBay stock has suffered a bit over the past few days, losing about 2.5% over the past week.
But the recent bearish sentiment, likely driven by Federal Reserve interest rate concerns, is but a temporary blip. eBay stock, in fact, has never been so bullish, having gained over 19% year to date, and almost 30% in the past six months. Certainly, those who held onto eBay shares in their portfolios last year are feeling better than one celebrity hedge fund manager, Carl Icahn.
What Does eBay Have to Do With Brad and Angelina?
Mr. Icahn actually got rid of his shares of eBay, preferring to invest in the company’s former subsidiary, PayPal Holdings Inc (NASDAQ:PYPL), which is now independent. One of the reasons Icahn was wrong is that eBay has acquired, like few other businesses, an iconic status. eBay transcends Wall Street. Where else could someone buy—paying $530.00 for the privilege of owning—Brangelina breath?
If you’re wondering what on earth “Brangelina breath” might be, it’s no less than the exhaled air of Angelina Jolie and Brad Pitt from when they walked down the red carpet for the Mr. & Mrs. Smith movie premiere. (Source: “16 Celebrity ‘Collectibles’ People Actually Bought On eBay. Humans Are Frickin’ Weird…,” 22 Words, last accessed September 20, 1016.)
The point is not the value of a jar of air from two of the world’s most famous celebrities, Brad and Angelina. Rather, it’s the fact that a web site, an actual marketplace like eBay, creates the conditions that bring together the demand and supply from the most basic items to the most unimaginable. eBay might evolve, but it won’t disappear.
The online marketplace is part of the cultural fabric of the 21st century, in the same way that the Forum was in Ancient Rome, the Piazza was in Renaissance Italy, and the Suq or Bazaar was in North Africa and the Middle East. In that sense, eBay stock has much lasting power. That’s what Carl Icahn may have missed. The activist U.S. investor bought 46.3 million shares of eBay stock in 2014 for some $2.8 billion.
Icahn pushed eBay executives to separate its then-subsidiary PayPal. The separation of the two entities happened in September 2014 and became effective in July 2015, as the payment service launched its initial public offering (IPO). The consequence of this transaction was recognized in the latest quarterly update on the composition of the Carl Icahn portfolio: no trace of eBay shares.
And that’s too bad, because since then, even without PayPal, eBay shares have gained some 30%. Meanwhile, as more and more payment systems challenge PayPal, eBay can rest comfortably in the awareness that it’s not just a company; it’s a culture. But culture and iconic value do not translate easily to stock values.
eBay’s Numbers Reflect Tangible Value
eBay occupies a spot in the list of the top 10 retail sector companies. The company claims to have 162 million active buyers, 900 million goods offered for sale, and—in the age of social media and user numbers—314 million people who have downloaded the eBay app for mobile phones. (Source: “eBay Launches the “Summer of Choice,” Letting Americans Vote for Their Favorite Mobile Deals All Season Long,” Business Wire, June 21, 2016.)
Traditionally, eBay gained its fame as an online store where sales happened through an auction system. Yet now, the vast majority of its annual $20.0 billion+ of transactions occur at fixed prices. Therefore, eBay is starting to encroach on the business of Amazon.com, Inc. (NASDAQ:AMZN), which has assumed ever more the role of becoming its main competitor.
eBay employs approximately 11,600 people and has 57% of its revenue outside U.S. borders. In its most recent quarter (Q2 – July 2016), eBay Inc reported a six percent increase compared to the same period in 2015. But, as eBay’s Chief Executive Devin Wenig has noted, there’s still plenty of room for both Amazon.com and eBay, so investors don’t have to pick one over the other. Still, Wenig wants eBay to become the “anti-Amazon.”
Wenig wants to make it easier for customers to search for items while also improving how the company addresses the concerns of its sellers, over such things as unfair reviews. (Source: “How eBay’s CEO Plans to Take On Amazon”, Bloomberg, September 19, 2016.) Another strategy for growth is more international expansion and a return to TV advertising.
eBay is also heading back to the basics. It’s looking at ways to improve searches to please sellers and buyers alike. To do that, it has even acquired Expertmaker AB, a firm that helps discover what buyers and merchants want, and at what price. (Source: Ibid.) eBay has also worked on improving spell-correcting algorithms to reduce the number of missed transactions because of misspelled words; one of the leading causes of fruitless searches.
So, almost two decades later, eBay has remained a dynamic company, eager and ready to adapt and grow in order to compete, all the while retaining its iconic status. eBay stock has its best years ahead. If I were Mr. Icahn, I would have kept my eBay shares.