EBay CEO’s Early Wins Have Yet to Erase Wall Street’s Doubts

(Bloomberg) -- When Jamie Iannone last worked at EBay Inc. in 2009, its then-smaller rival Amazon.com Inc. was struggling to survive the Great Recession.

Now Iannone has returned as chief executive officer, and EBay is the one trying to emerge from Amazon’s lengthening shadow.

EBay is seen as such an also-ran by activist investors that they believe the company is more valuable sold off in pieces. Walmart Inc., a latecomer to e-commerce, is expected to supplant EBay as America’s No. 2 online marketplace this year. As if that were not enough, members of EBay’s security team were indicted earlier this year for an alleged cyberstalking scandal -- casting another pall over the San Jose, California-based company.

Iannone, 48, professes little concern, arguing that a sales surge from shoppers afraid to visit stores during the Covid-19 outbreak could provide the kind of lasting momentum that has long eluded EBay. The rush online certainly buyoed the company’s second-quarter sales and earnings, which beat analysts’ expectations. But after digesting the results, investors balked -- the shares were down about 2% on Wednesday morning -- because they fear U.S. consumers will revert to their usual shopping habits once the pandemic eases.

Read more: EBay Boosts Outlook on Pandemic; Investors Ask If It Will Last

It’s up to Iannone to prove them wrong by making sure the 8 million new shoppers and tens of thousands of new sellers attracted in the second quarter stick around. He’s hopeful given the speed with which merchants reacted to the outbreak, offering masks and hand sanitizer at first and then helping shoppers find laptops, office furniture and fitness equipment as offices and gyms closed.

“I’ve really been impressed with our sellers and how they’ve stepped up to help buyers in need,” Iannone said in an interview.

Iannone left EBay in 2009 for stints with Barnes & Noble Inc. and Walmart, where he ran Sam’s Club before becoming chief operating officer of Walmart’s e-commerce division. He’s no stranger to competing with Amazon.

At first glance, his plan for EBay sounds similar to that of predecessor Devin Wenig, who resigned in September after clashing with activists looking to streamline the company. Iannone wants to use technology to improve the shopping experience and restore EBay to its former glory. He’s spending on marketing to attract new shoppers, especially younger ones.

In particular, he thinks the company has neglected the $500 billion market for used items such as collectible sneakers, apparel and furniture, relinquishing too much business to Facebook Inc.’s marketplace and such startups as OfferUp. EBay‘s efforts to streamline payments so buyers and sellers can meet locally to exchange goods without cash show promise, Iannone said.

The similarities between his and Wenig’s visions could be one reason the stock pulled back on Tuesday, but investors should give the new CEO time to differentiate, said DA Davidson & Co analyst Tom Forte.

“It’s too early to judge the Jamie Iannone tenure on his first earnings call,” Forte said. “He’s still getting his feet wet, and we have to be patient and let him clarify his vision.”

A first step that impressed some EBay investors was the sale of the classifieds business to Norwegian digital marketplace Adevinta in a cash and stock deal valued at $9.2 billion. EBay got $2.5 billion in cash from the deal to help appease activist investors and also secured a 44% stake in the new entity, which is the largest online classifieds business in the world with leading positions in 20 countries.

While the classifieds unit suffered when thousands of car dealership closed during the pandemic, EBay’s ownership stake means it will benefit from a rebound without having to manage the business. Iannone declined to comment on the sale, but he steered the deal through a series of last-minute meetings to secure the favorable arrangement with Adevinta, which even impressed some competing bidders who lost, according to three people familiar with the matter.

Bill Smead, whose Smead Capital Management has owned EBay stock for 12 years, said he’s satisfied with the company’s performance. Its growth is slow and steady, and the core business survives even after selling off valuable pieces including PayPal, StubHub and classifieds. Analysts are mistaken to compare EBay’s growth rate to Amazon without considering profitability, he said.

“We’ve owned this stock for 12 years and have made about 20 times our money,” Smead said. “There’s nothing wrong with this business.”

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