eBay Stock Gains Due to StubHub Sale to Viagogo

eBay (EBAY) shares are trading 2% higher at the time of writing today. The stock gained momentum after eBay announced the sale of StubHub to Viagogo for $4.05 billion.

Viagogo is one of the world’s largest ticketing platforms for sports, entertainment, and related events. StubHub has a huge presence in the US ticketing marketplace. The two companies offer tickets for events in 70 countries.

StubHub was founded by Viagogo CEO Eric Baker. eBay acquired the company in 2007 for $310 million. Baker said, “It has long been my wish to unite the two companies. I am so proud of how StubHub has grown over the years and excited about the possibilities for our shared future. Buyers will have a wider choice of tickets, and sellers will have a wider network of buyers. Bringing these two companies together creates a win-win for fans – more choice and better pricing.”

The sale will likely close by the end of the first quarter of 2020. Notably, the sale will be an all-cash transaction. eBay has a debt balance of $8.41 billion. The company might use the proceeds to reduce its interest burden.

eBay shares have risen close to 24% in 2019. The returns are similar to the S&P 500 ETF, which has risen 24.6% YTD (year-to-date). The stock has made a comeback this year after the sell-off in the last quarter of 2018. eBay stock had fallen more than 15%.

The stock has fallen since the company’s third-quarter results. eBay reported revenues of $2.6 billion—compared to the consensus estimates of $2.64 billion. The company’s adjusted EPS was $0.67, which was above the estimates of $0.64.

In the fourth quarter, eBay expects sales between $2.77 billion and $2.82 billion, which is below analysts’ estimates of $2.85 billion. The company’s earnings were forecast between $0.73 and $0.76—compared to consensus estimates of $0.76.

eBay laid out a three-year plan to increase profit margins. The company expects the plan to improve its operating margin by three percentage points by the end of 2022. During the earnings call, eBay’s management stated that it would provide an update on StubHub before the next earnings release. Selling the StubHub business has been on management’s radar for some time.

Several analysts lowered eBay’s target price after the company reported its third-quarter results and provided guidance for the December quarter. According to multiple reports from The Fly,

• Piper Jaffray maintained a “neutral” rating and lowered the target price from $38 to $37.
• Mizuho maintained an “underperform” rating and lowered the target price from $36 to $33.
• Baird maintained an “outperform” rating and lowered the target price from $46 to $44.
• Raymond James downgraded eBay from “outperform” to “market perform.”
• Benchmark maintained a “buy” rating and lowered the target price from $47 to $45.

Investors are worried about eBay’s weak sales forecast. Before announcing the StubHub sale, analysts expected the company’s 2019 sales to increase 0.4% to $10.79 billion. The sales will likely rise 2% to $11 billion in 2020 and 6% to $11.72 billion in 2021.

However, the acceleration in the revenue growth could drive eBay’s profit margins higher at an annual rate of 12.8% over the next five years. In comparison, the company’s earnings rose at an annual rate of 0.52% in the last five years.

eBay stock has lost more than 10% since its third-quarter results. Currently, the stock is valued at $29 billion in terms of the market cap or 2.7x forward sales. The company has an EV-to-EBITDA multiple of 9.2x. eBay is trading at a forward PE ratio of 12.5x.

The stock’s expected five-year PEG ratio is 0.98. The stock has a price-to-sales ratio of 2.73, which indicates that it’s trading at a reasonable valuation. Analysts tracking eBay have a 12-month price target of $40.12 which is 11.4% above the current trading price.