- Data breaches may suck away both buyers and sellers.
- eBay’s foray into live auctions with Sotheby’s could create new customers for both firms.
- Perceived lack of direction is causing confusion.
Over the past couple of months, eBay (NASDAQ:EBAY) has taken proactive measures to counter the potential damage of a recent data hack on its customer base. From study groups to measure the impact of the security breach, eBay hopes to learn what actions it can take to counter negative views. An incentive for participating in a focus group session - an "opportunity to come to the eBay campus and get paid $150" will no doubt bring lots of participants, but one might ask, why not listen to the community of sellers and buyers you've already built? They seem to be particularly vocal on eBay chatboards with opinions on what the company can and should do. Unfortunately, online attacks continue as reported by Ina Steiner of EcommerceBytes.com in early August: eBay Accounts Breached through Live Chat.
In April, eBay announced they would send a $3 billion dollar payment to the IRS in order to capture another $6 billion in unclaimed overseas profits. At the time, company CFO Bob Swan was quoted in Reuters as saying, "We are an acquisitive company and we need to ensure we have the resources available to capitalize on targets that become available." But he also added, "To be clear, we are not announcing any large U.S.-based acquisition."
But if the company isn't going to use the money to acquire, then why take the tax hit? Could eBay need the cash infusion to keep things running smoothly at home and facilitate a company stock rebuy plan announced about the same time?
Under the leadership of Chief Executive John Donahoe, eBay has worked hard to revamp its business from a focus on auctions to a general marketplace with well-known brands and fixed prices. These changes have caused turmoil and defection among the smaller businesses that once were eBay's base. Hence, amazement when eBay announced in July, 2014 a partnership with Sotheby's (NYSE:BID). Over ten years ago, in 2002 eBay promised to power Sotheby's auction website, but that partnership ended the following year. Now the two firms have a new initiative, but many auction goers are skeptical, including this writer.
This is not the first time eBay has ventured into the world of "high end" auctions, or spent serious money acquiring firms, only to sell or disband them later. Butterfield and Butterfield was a large American auction house, founded in 1865 by William Butterfield in San Francisco. Purchased in 1999 by eBay for $260 million, only three years later it was acquired from eBay by British auctioneer Bonhams and is now defunct.
However, the art market is riding a high and if eBay can launch a Sotheby's online auction line, it could increase revenues at both firms. According to Artprice, the global art auction market rose in value by 17 percent to a record $7 billion in the first half of 2014. Artprice is a French company which tracks art auction results worldwide. According to Artfixdaily, during the first six months of 2014, art works sold at public auction brought a total $7.15 billion, approximately a billion above the $6.11 billion spent in the same period in 2013.
This writer doesn't want to sound negative on Ebay. Indeed, one of my first stock purchases years ago was eBay after they announced their IPO. I made money on that purchase and have subsequently done the same on downturns. Currently selling in the $54 mark, some might think it time to buy since the company held an almost $60 high in February. According to MarketWatch, RBC Capital's Mark Mahaney, in a note to clients, eBay "has enough momentum in its current markets, growth potential in those markets, new investment initiatives in place and execution competence to consistently deliver at least low double-digit earnings per share growth."
I don't share Mr. Mahaney's enthusiasm. eBay continues to exhibit bipolar tendencies that make me nervous. Contradiction of company policy makes me wonder if there is no policy at all. Who exactly is leading this ship, and where are they headed? Until Mr. Donahoe can shed more light on company direction, I'll remain a holdout on purchasing eBay stock. I fear the company has reached the apex of their value, and I'm not willing to risk the downside.