Things started out with a bang in 2019 for investors in eBay (NASDAQ:EBAY). Just prior to the company's fourth-quarter earnings report, eBay was double-teamed by activist investors seeking change at the languishing e-commerce platform. Activist investment fund Elliott Management sent a letter to eBay's board of directors disclosing a 4% stake in the company and outlining a series of steps it said would unlock value for investors. Hedge fund Starboard Value also disclosed a stake of less than 4%, suggesting the company work to improve its operations or spin off some of its business. Shares have consequently appreciated 29% year-to-date.
Investors should expect to hear more details when eBay reports the financial results of its recently completed first quarter after the market close on April 23. Let's recap the company's fourth-quarter results and dig into eBay's reply to the activist investors to see if it provides any insight into what shareholders can expect when the e-commerce pioneer reports earnings.
Better than expected
While eBay's results were nothing to write home about, they were better than many investors had expected. The company generated revenue of $2.9 billion, up 6% year over year, edging past both management's guidance and analysts' consensus estimates. This resulted in adjusted operating income of $670 million and adjusted earnings per share of $0.71, up 20% compared with the prior-year quarter.
Gross merchandise volume (GMV) of $23 billion increased by about 1%, though eBay faced foreign currency headwinds. Excluding the adjustment for exchange rates, GMV would have grown by 3%.
The biggest surprise was the announcement that eBay would begin paying a quarterly dividend of $0.14, yielding about 1.5%, with the first payout commencing on March 20. Investors had long sought the move, and eBay finally relented.
Agitating for change
In light of the push from activist investors, eBay announced in early March that it was undertaking several new initiatives to create value for shareholders and position the company for future success. eBay said it was working collaboratively with Elliott Management, Starboard Value, and other shareholders to develop its plans. The most immediate change was the addition of two new independent directors to the board, with a third coming later in the year.
Additionally, the company said it would conduct a strategic review of its portfolio, including StubHub and eBay Classifieds Group, which the hedge funds had urged eBay to spin off. The company stopped short of endorsing such an action, saying there was no assurance that the review would "result in a sale, spin-off or other business combination."
We'll likely hear more about this review when the company reports earnings and during the conference call that follows.
What the quarter might hold
For the first quarter, eBay forecast revenue in a range of $2.55 billion to $2.6 billion, representing flat to 2% growth year over year, excluding the effect of exchange rates. The company is also anticipating adjusted earnings per share of between $0.62 and $0.64.
While we don't want to fall victim to Wall Street's short-term mindset, understanding Wall Street sentiment can help put the results into context. Analysts' consensus estimates are calling for revenue of $2.58 billion, essentially flat compared with last year, and first-quarter earnings per share of $0.63, at the midpoint of management's range.
There's a lot going on at the e-commerce retailer, and investors are sure to get more details when eBay reports on April 23.