eBay Initiates a Dividend, Gives Upbeat Earnings Outlook

(Bloomberg) -- EBay Inc. Chief Executive Officer Devin Wenig reached out to activist investors by issuing the company's first-ever dividend, but rejected for now the idea of selling tickets marketplace StubHub and other pieces of the company.

Wenig's moves helped the online marketplace divert attention from sluggish growth during the critical holiday quarter and a disappointing revenue forecast for the current year. EBay said Tuesday that it will initiate a dividend of 14 cents a share and add $4 billion to its stock repurchase program, planning to return about $5.5 billion to shareholders this year.

While shares initially rose as much as 6.9 percent in extended trading, they later gave back all of those gains on concerns about the underwhelming sales outlook and Wenig's dismissal of Elliott Management Corp.'s push to consider selling pieces of the company. Elliott Management sent a letter last week to EBay's board outlining steps it said are “urgently needed” to boost the company's value, including potential asset sales.

“It's the early stages of a negotiation,” said Josh Olson, analyst at Edward Jones & Co. “The dividend might be an olive branch of sorts, but it's clear EBay is not fully acquiescing to Elliott's proposal.”

Wenig said there are “substantial synergies” between EBay's central marketplace and its other businesses, such as the ability for sports fans to buy merchandise from their favorite team on EBay after buying tickets on StubHub.

The dividend marks a maturation for EBay -- a transition that other companies, like Starbucks Corp. and Amgen Inc., have successfully navigated when they shift from fast expansion to the steadier operation of a powerful brand, said Bill Smead, CEO of Smead Capital Management, a long-time EBay shareholder.

“Growth just means the business is getting bigger,” he said. “EBay still has a tremendous amount of brand power, which is very valuable.”

Wenig has been trying to accelerate EBay's pace since he took over as CEO following the company's 2015 split from faster-growing payments business PayPal Holdings Inc. But investors have been losing patience. By issuing a dividend, EBay may have eased some investor fears over lackluster growth for the online platform that sells nearly $100 billion in goods annually to 179 million global customers.

“This suggests EBay is willing to work with these activist investors to unlock value,” said Vic Anthony, analyst at Aegis Capital Corp. “EBay is a value stock and no longer a growth story.”

Wenig said that 2019 will be a transition year and growth will accelerate in 2020.

“EBay has never had more buyers, business sellers or inventory in its history,” he said on a conference call with analysts. “We feel strongly about our ability to deliver value now and in the future.”

Earnings, excluding some items, will be 62 cents to 64 cents a share in the first quarter, the San Jose, California-based company said. The profit outlook topped analysts' average estimate of 61 cents. Fourth-quarter adjusted earnings were 71 cents a share, also beating estimates.

Revenue will be $2.55 billion to $2.6 billion in the first quarter and $10.7 billion to $10.9 billion for 2019, EBay said. Analysts predicted $2.66 billion and $11.2 billion, respectively.

EBay's split from PayPal began with pressure from activist investor Carl Icahn. Then EBay CEO John Donahoe ultimately agreed to the spinoff after months of posturing against it.

To contact the reporter on this story: Spencer Soper in Seattle at ssoper@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack

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