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eBay jumps after Icahn proposed spin off of PayPal
01/22/2014 8:11 pm EST
Why the pop?
In an interview on Bloomberg TV activist investor Carl Icahn called for a breakup of eBay in order to release the value of its faster-growing PayPal payments service from its online marketplace. Icahn owns about 0.82% of eBay shares, the company said today. eBay CEO John Donahoe noted on the company’s earnings conference call today that he had talked with Icahn last week. The company’s position, he said, was that the best way to maximize shareholder value is for PayPal to remain a part of eBay so that the company can use its market data and its financial resources to accelerate PayPal’s growth.
The earnings that eBay announced today, the earnings that were pretty much overshadowed by Icahn’s TV appearance, certainly didn’t hurt Icahn’s case. The company reported revenue for the fourth quarter that climbed 13% year over year to $4.53 billion. That fell slightly short of Wall Street projections of $4.55 billion in revenue. Earnings of 81 cents a share, excluding one-time items, were a penny above Wall Street estimates.
But eBay issued what I’d characterize as slightly disappointing guidance of $4.15 billion to $4.25 billion in revenue and 65 cents to 67 cents a share in earnings for the first quarter of 2014. Those numbers are below the Wall Street consensus of $4.3 billion in revenue and 72 cents a share in earnings.
And if you break down eBay’s results for the quarter into the company’s two major segments—PayPal and market places—it’s hard to ignore Icahn’s point.
PayPal showed 19% growth in revenue for the quarter (and for the year) to $6.6 billion in revenue. PayPal added 5.2 million active registered accounts and ended the year with 143 million, a 16% increase. Total net payment volume grew by 25% in the quarter to $180 billion. Mobile, a key to PayPal’s future, showed payment volume off the eBay marketplace grow by 128% in the year.
Performance for the company’s original marketplace business wasn’t terrible by any means but it didn’t keep up with PayPal. Gross merchandise volume, excluding vehicles, increased by 13% for the quarter and the full year. Revenue for the marketplace business grew by 12% in the quarter and the year to $8.3 billion for 2013. eBay’s marketplaces added 4.6 million active users in the quarter an ended with 128 million active users.
eBay trades at 17.5 times estimated 2014 earnings per share. That’s a low multiple for PayPal’s 19% revenue growth.
Which is exactly Icahn’s point.
eBay has announced that its board has authorized an additional $5 billion stock buyback program. (That’s on top of the $640 million remaining in its June 2012 authorization.) I doubt that will be enough to make Icahn happy.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of eBay as of the end of December. For a full list of the stocks in the fund see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.
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