Must-know: What eBay shareholders should expect this year
Must-know: Why PayPal is driving eBay's mobile growth (Part 5 of 7)
eBay explained why a spin-off from PayPal isn’t a good idea
eBay (EBAY) had an eventful first half of 2014. In the first quarter, eBay had to face a proxy war with Carl Icahn, an activist investor and eBay’s largest investor. Carl Icahn had proposed a spin-off of PayPal from eBay. The rationale behind the proposal was that eBay hasn’t done as well as it should have and that a separation would unlock PayPal’s value. But eBay didn’t agree with Icahn’s suggestions and provided reasons for why they aren’t good ideas.
Firstly, PayPal acquires eBay customers with virtually zero cost, while 50% of PayPal’s mobile volume came from eBay in 2013. Secondly, eBay provides much-needed funding to PayPal for its growth. eBay provides a source of low-cost capital for PayPal—which would be difficult for PayPal to get if it became an independent entity. The synergies between eBay and PayPal are important and shouldn’t be separated.
This is not the first time Icahn has gone against a company. Earlier this year, Icahn tweeted on Twitter (TWTR) that Apple (AAPL) wasn’t doing enough with its share buyback program. Icahn has about $4 billion invested in Apple and is considered a high-profile investor. He also has a large stake in Netflix (NFLX), an Internet video service provider, and Hologic (HOLX), a medical device and diagnostics manufacturer.
What shareholders expect from eBay
eBay mentioned that the proxy fight gave the company a chance to interact with shareholders. Shareholders believe that eBay and PayPal are better for now, but eBay should be open-minded about alternatives. Plus, they want eBay to aggressively go for the $5 billion share buyback program that it announced early this year. In the second quarter, eBay bought $1.7 billion worth of shares, making it a total of $3.5 billion for the first half of the year.
eBay definitely has means to complete the buyback target by this year. As the above chart shows, eBay’s net cash balance has declined from $13.1 billion as of December 31, 2013, to $11.6 billion as of June 30, 2014, due to the partial stock buyback that it’s made. But it still has sufficient net cash balance to complete the rest of the buyback program.
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