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Did activist investors force the CEO's departure?
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The drama continues at eBay (EBAY 0.01%). Late last month, the company's CEO, Devin Wenig, stepped down, apparently over a disagreement with the board of directors regarding the disposition of eBay's Classifieds business. The company turned the reigns over to CFO Scott Schenkel while the board searches for a permanent replacement.
It's against this backdrop that eBay is scheduled to release the financial results of its just-completed third quarter after the market close on Wednesday, Oct. 23. Let's take a look at eBay's second-quarter results, review the events that likely led to the CEO's departure, and identify what investors should be looking for when the tech giant reports earnings.
Image source: eBay.
For the second quarter, eBay reported revenue of $2.7 billion, up just 2% year over year, or up 4% when eliminating the impact of foreign currency exchange rates. The company reported adjusted diluted earnings per share of $0.68, surpassing the high end of management's forecasted range, which topped out at $0.63.
Active buyers on the platform increased by 4%, growing to 182 million worldwide. Gross merchandise volume on eBay's Marketplace climbed to $21.5 billion, generating $2.2 billion in revenue, up about 1% compared to the prior-year quarter. StubHub revenue grew to $264 million, up 7% year over year, while sales of classifieds increased to $271 million, up 5%.
eBay announced on Sept. 25 that its CEO had stepped down. "Given a number of considerations, both Devin and the Board believe that a new CEO is best for the Company at this time." Wenig countered in a tweet, saying, "In the past few weeks it became clear that I was not on the same page as my new Board. Whenever that happens, it's best for everyone to turn that page over."
The company also noted in its announcement that its previously announced operating review is ongoing, and that it expects to provide an update this fall.
Several news outlets have reported that the disagreement hinged on the board's decision to sell off eBay's Classifieds. Wenig's reference to the "new" board is referring to two new board members that have recently been installed at the urging of activist investors who been urging eBay to sell off some of its business units.
It's worth looking back to see how this all started. Back in January, activist hedge fund Elliott Management became one of eBay's largest investors after announcing in an open letter that it had acquired a 4% stake in the e-commerce platform, at the time worth about $1.4 billion. This followed a 1% investment in eBay by Starboard Value, which was also agitating for change.
Elliott Management said in its communications that eBay was severely undervalued, and it urged the company's management to revitalize its marketplace and sell off some of its ancillary businesses, including ticket reseller StubHub and eBay's Classifieds.
In early March, eBay announced that it would undertake an internal review of the company's portfolio of assets, saying it was working with Elliott Management, Starboard Value, and "other significant shareholders" on these initiatives. The company eventually ceded two board seats to the activist investors and is considering the sale of the two business units.
For the third quarter, eBay is guiding for revenue in a range of $2.61 billion and $2.66 billion, which would represent year-over-year growth of between 1% and 3%, excluding the impact of foreign currency exchange rate fluctuations. This would result in adjusted diluted earnings per share of between $0.62 and $0.65.
Analysts' consensus estimates are squarely in line with eBay's forecast, calling for revenue of $2.64 billion and earnings per share of $0.64.
The biggest item on shareholders' radars will be any announcement regarding the potential sale of StubHub or eBay Classifieds. The decision over whether to pursue these divestitures was obviously a contentious one, and it may have been the catalyst for the CEO's departure.