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eBAY Inc (ticker: EBAY)

In Q1, we invested in eBay at an average price of $30.97, which returned 22.31% in the quarter. eBay is a great business at a deeply discounted valuation, with several self help initiatives which are set to grow sales and increase margins in the coming years. There are three ways to win with eBay.

First, eBay is moving payment processing from PayPal after the termination of their contract in 2020. This shift positions eBay to earn the processing spread that was previously earned by PayPal. With Gross Merchandising Volume (GMV) of $100 billion, eBay stands to earn a nearly 1% spread, all while lowering the take rate, a move which provides better economics for the sellers in eBay’s ecosystem.

Second, eBay is in the early stages of allowing advertising on their ecommerce marketplace. Advertising represents an opportunity of up to 2% of the $100 billion GMV, potentially adding 20% to current revenues.

Third, eBay has substantial hidden asset value in StubHub and International Classifieds. StubHub is the leading ticket marketplace, and International Classifieds owns a portfolio of leading local classifieds businesses in Canada, Australia, and throughout Europe. These businesses are operated autonomously, and are consistent, high margin, double digit growers. When StubHub and International Classifieds are marked to market, we are effectively buying the core eBay marketplace business at less than 3x EBITDA.

Shortly after we made our investment in eBay, an activist investor took a stake and began pushing for eBay to sell StubHub and International Classifieds in order to refocus on the core marketplace business. While we believe that these actions would realize value quicker than the initiatives already underway, we do not believe they are essential for our investment to reward our investors beyond the returns already achieved.

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