UBS Bullish On eBay Inc, Notes Icahn’s Influence On Future Decisions

UBS Bullish On eBay Inc, Notes Icahn’s Influence On Future Decisions

UBS reiterated an aggressive price target on eBay Inc (NASDAQ:EBAY) as it speculated on the future after one of the loudest Wall Street / Silicon Valley tiffs in memory.

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eBay now has an open ear to Icahn

In an investor letter released yesterday, UBS logically noted how Icahn’s influence is already having an impact in areas where eBay Inc (NASDAQ:EBAY)’s management and Icahn might agree.  Now that Carl has been put in a corner and given a time out, eBay will listen to Carl’s logical pleadings. These are critical points for the bull case, which might suggest Icahn might hold this trade, which has already generated reported profits of $50 million for the outspoken activist investor.

Most importantly, we might see changes in the math rather than anything long term that produces something of value.  This is the Wall Street contribution to Silicon Valley: Icahn is going to show eBay how Wall Street manipulates stock value.  Lesson one: the buyback. Don’t invest in the company, its products or employees. Buy back the stock and cash out on the IPO craze.

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The UBS notes that the buyback is the likely best method to generate short term capital appreciation for the stock price. “With $12.8b in cash (~$3.2b in the US), just $4.1b in debt, & $5.6b in repurchase authorization (as of Q4 2013), we view a larger buyback as more than achievable,” the letter observed, doing the math that eBay is likely to be receptive towards.

Cash out on the IPO craze

Now that Icahn has an open ear on the board, speculation is even the PayPal spin off might happen.  Here’s how that math plays out:

eBay Inc (NASDAQ:EBAY)’s biggest concern was always the revenue from PayPal – it’s nearly half the company and vice versa.  They viewed it as the golden revenue goose that kept the bottom line solid.  For longer term growth, taking away this revenue synergy seemed like a short term play at best.  That’s in Wall Street’s wheelhouse but for guys gazing 10 years into a more electronically-centered future, it didn’t make sense. But with a spin off, eBay keeps control of the revenue golden goose but can cash in on the IPO mania.  The “market environment” is ripe for IPOs, Icahn might be saying to eBay’s board right now – code words for ‘we can cash out a lot of cash in a short period of time. ‘ Think Facebook.

“We continue to view a near term spin of PayPal as unlikely, but do not rule out a 20% IPO in the more distant future,” was the official UBS analysis.

Focus on value

UBS was overall staid in its analysis:

“Our industry checks & ChannelAdvisor data point to upside to Street Q1 estimates. Specifically, ChannelAdvisor data during Q1 suggests growth of ~15.2% (monthly avg) vs. our est of 14.5% US GMV ex-vehicles growth. We note monthly reported figures ramped from 12.7% in January to 15% in February to 17.8% in March, with March Fixed Price coming in at 21.5% (best figure since March 2013),” the letter said, doing its level best to talk only to insiders. “Longer term, we note that recent innovations within Marketplaces (eBay Now, Global Shipping Program, Cassini, The Plaza, acquisition of PhiSix) & PayPal (enhanced mobile app, PayPal Beacon, partnerships) could provide upside to our estimates over the medium-long term.”

What that means is the earnings prospects look good.  That’s right. Earnings being discussed in the same sentence as a tech company.  Watch out, Jeff Bezos.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)
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