EBay Inc. reportedly plans to sell off its classified advertising business to Adevinta ASA for nearly $9 billion. It is part of a long-term strategy by the California company to shed an ancillary business and squarely focus on its core marketplace, which has been buoyed by the coronavirus crisis as consumers move online, experts say.
The San Jose, Calif.-based e-commerce player is reportedly selling off its Classified unit to Adevinta, a Norway-based online marketplace company, for nearly $9 billion in a cash-and-stock deal, according to multiple media reports. EBay did not return inquiries seeking comment, but the company is expected to retain a small stake in the business, according to the reports. Adevinta declined to comment.
R.J. Hottovy, an analyst with Morningstar, said in an interview that selling off Classified will make eBay a "pure-play e-commerce company," allowing it to better compete with online giants like Amazon.com Inc. and smaller players like Brooklyn-based Etsy Inc. that also have seen sales surge in the wake of COVID-19.
EBay said it reached a total of 174 million global buyers in the first quarter, up about 2% from the year-ago quarter, as more consumers turned to the company for shopping needs. The company also beat first-quarter estimates and raised its outlook for the second quarter, saying it expects revenue to range between $2.75 billion to $2.80 billion compared to $2.38 billion to $2.48 billion in its prior outlook. Analysts surveyed by S&P Global Market Intelligence expect second-quarter revenue to reach $2.79 billion.
"They've seen a lot of new and lapsed customers come back to the platform," Hottovy said. "With so many shoppers purchasing online, it really makes sense for them to make the core business user-friendly and as streamlined as possible to keep those customers coming back."
 EBay's Whitman campus in San Jose, Calif. Experts say selling off the classified ad business will allow eBay to focus on growing its online platform amid the coronavirus crisis. |
The move by eBay to sell off the Classified business comes amid intense scrutiny from activist investors Starboard Value LP and Elliott Management Corp. that placed eBay under a strategic review in 2019 and ordered a restructuring.
EBay already sold its ticket sales unit StubHub in February to Viagogo Entertainment for $4.05 billion and has been looking to further restructure and eliminate less-profitable businesses, said Lee Horowitz, an analyst with Evercore. Selling off the Classified unit fits in with that plan, allowing eBay to "double down and focus on the core marketplace and allow them to not necessarily be distracted by related or ancillary business lines," he said.
"The company has basically had activists kicking up dust in the company for a while now and basically taking the view that the core marketplace is underperforming relative to the overall market," Horowitz said in an interview.
The Classified business recently saw some coronavirus-related pressure and continued headwinds in horizontal display advertising. The unit, which contains a portfolio of international online classifieds brands, generated $248 million for eBay in the first quarter, down 3% from $256 million in the year-ago period.
Hottovy, of Morningstar, said eBay originally thought it could achieve more "cross-selling synergies," between eBay's marketplace users and Classified, but that did not pan out as the company had hoped. "At the end of the day, they have very different audiences, and the way the platforms are run are very different too," he said.
Competitive game
EBay still lags behind competitors, with revenue remaining relatively flat on a year-over-year basis in 2019, increasing 0.5% to $10.8 billion, compared to an 8.3% annual increase the year prior.
Walmart Inc., Target Corp. and Amazon each experienced higher revenue growth in their recent fiscal years, according to data compiled by Market Intelligence. In fiscal 2019, Walmart's revenue grew 1.9% to $523.96 billion, while Target's revenue jumped 3.6% to $78.11 billion. Amazon continued its ascent in 2019, with revenue rising 20.5% to $280.52 billion.
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It remains to been seen how a potential Classified business sell-off will help eBay compete with companies like Amazon, but Hottovy noted that eBay has seen increased traffic and strong gross merchandise volume.
The company's marketplace GMV reached $21.26 billion in the first quarter, down about 1% from the year-ago period but representing an acceleration of 4 points versus the prior quarter.
EBay is largely a consumer-to-consumer marketplace and a small-business-to-consumer marketplace, so there will always be a place for the company in the e-commerce market, Hottovy said.
But he noted that there is certainly room to improve the marketplace for buyers with a wider selection of products and services while making the platform more user-friendly for sellers. "I think the company has got some things in the works in terms of new developments to be more competitive and more relevant — I think that's the No. 1 issue," Hottovy said. "The brand is still not usually the first thing that comes to mind when looking for new products."
COVID-19 tailwinds
The potential sell-off comes as eBay benefited from coronavirus-induced demand that it could capitalize on to further strengthen its marketplace and retain customers, experts say.
"There's a tailwind on e-commerce and by extension eBay's business," said Andrew Lipsman, principal analyst with eMarketer, in an interview. "At this point in time, there is even more value to be realized by focusing on the core marketplace."
Lipsman said selling off the Classified unit is likely at the top of eBay's new CEO Jamie Iannone's checklist, along with focusing on attracting new buyers and re-engaging dormant users to build a sturdier marketplace, along with investing in sponsored listings.
"If you make the right tweaks to that listing, you could start to pull out a lot of value," Lipsman said. "Those are the product-focused strategies that will bolster this business long term, and this is what they will be able to do if they have fewer things to worry about."