eBay stock spikes after activist investor brightens turnaround hopes

After fighting for long to regain its lost glory in the e-commerce space, rather unsuccessfully, the pressure is mounting on eBay (EBAY) to come up with more effective strategies before it is too late. Like the management, investors are also waking up to the realization that being a laggard in the highly competitive sector could be disastrous for the company.

Though the free-falling stock got a modest push after earnings topped estimates in the most recent quarter, it continues to underperform the sector amidst the persisting bearish sentiment. From cost-cutting to advertising campaigns, the management’s turnaround program includes what it takes to prepare the company to take on rivals Amazon (AMZN) and Walmart (WMT).

e-Bay shares gained sharply Tuesday after Elliott Management, an investment firm that often resorts to activism to influence decision makers, bought a significant stake in the company and laid down a comprehensive revival plan with stress on changing its business model fundamentally. The investor in its letter has raised concerns about the online retailer lagging behind its peers for a long period and proposed effective measures to enhance shareholder value.

e-Bay shares gained sharply after Elliott Management bought a significant stake in the company and laid down a comprehensive revival plan

Responding to the letter, the company’s leadership expressed its intention to engage with Elliott, considering the latter’s interest in the affairs of eBay and the promising proposals. Through its multipronged proposal, Elliott seeks to lift the company’s share price to about $55-$63 by next year.

The investor firm, which acquired a 4% stake worth about $1.4 billion in eBay, remains bullish about the steady growth of the eBay marketplace, despite its low valuation and relatively unimpressive financial performance over the years.

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While blaming the current slump on the flawed execution of policies in the past, Elliott said it is impressed by the strong performance of eBay’s subsidiaries Classifieds Group and StubHub, which according to the investor are undervalued. Elliott also suggested that the two business units will perform much better if they are divested. The key proposals include streamlining of operations with focus on proper allocation of capital expenditure.

e-Bay shares gained about 7% Tuesday, extending the recovery that started more than a month ago after slipping to a multi-year low. The stock, which lost about 19% in the past twelve months, climbed to a four-month high.

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