It was an eventful month for e-commerce giant eBay (NASDAQ:EBAY). The company named a new CEO, satisfied an activist investor, reported first-quarter earnings, and provided a business update in light of the COVID-19 pandemic.
There was plenty here for investors to like, and shares of eBay accordingly rose 32.5% in April, according to data provided by S&P Global Market Intelligence. After shaking off a 13% drop in March, the stock has returned about 12% so far in 2020, well ahead of the market.
Activist investor Starboard Value first engaged eBay in 2018 and was a catalyst toward confirming two new directors to eBay's board and initiating a dividend, among other things. However, Starboard felt changes at eBay weren't enough toward unlocking shareholder value. So in February, it tried to add four new directors to eBay's board.
The proposal wasn't appreciated by eBay's management. In March, it responded by saying Starboard's proposals were "unwarranted, unreasonable and detrimental." With the battle lines drawn, eBay shareholders could rightly be worried about the ultimate direction of the company.
However, those fears were calmed in April, as eBay and Starboard Value jointly announced an agreement. Starboard withdrew its February proposals in support of newly appointed eBay CEO Jamie Iannone. In return, eBay announced it will find a new independent director to the board and consider all candidates Starboard endorses.
A peaceful resolution was enough to encourage investors. But eBay's Q1 results also had some bright spots. So far, its business is largely unaffected by the coronavirus. Q1 net revenue fell by 2%, and for the year, the company's keeping its guidance of 1% to 3% organic revenue growth after adjusting for currency fluctuations.
While revenue is merely flat, earnings-per-share (EPS) growth is much better. Q1 EPS from continuing operations grew 12% to $0.07, according to generally accepted accounting principles (GAAP). For 2020, eBay expects EPS of $2.20 to $2.30. So even after eBay's stock gains in April, this technology stock trades around 18 times 2020 earnings.
eBay's EPS growth is due to share repurchases. In Q1, the company completed its $4.1 billion sale of StubHub and coincidentally bought back $4 billion eBay stock. Going forward, share repurchases will likely be a significant part of continued EPS growth.
One key question still remains regarding eBay's classified business. This was a major point of contention with Starboard, with the latter wanting eBay to unlock its value somehow. In response, eBay is conducting a review of this business segment and plans to make an announcement in mid-2020.