Can eBay Recover?

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With shares of eBay (NASDAQ:EBAY) trading around $56, is EBAY an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Ebay provides online platforms, tools, and services to help individuals and merchants with online and mobile commerce in the U.S. and around the world. Its marketplaces segment operates e-commerce platform eBay.com and vertical shopping sites. The company operates through three segments: Marketplaces, Payments, and GSI. Ultimately, through its tools and platforms, eBay assists individuals and merchants around the globe engage in online and mobile commerce.

Continuing the battle with activist investor Carl Icahn, eBay on Tuesday told shareholders a PayPal spinoff would not be in the company’s best interest. “Our shareholders and our customers are best served by keeping PayPal and eBay together,” the board of directors wrote in a letter to shareholders. “No other payments competitor has achieved PayPal’s success — because no other competitor has held a commerce platform like eBay.” In the letter, eBay reiterated five essential reasons eBay benefits from its partnership with PayPal. They include; PayPal grows faster because of eBay; the company accelerates PayPal’s success; data sharing leads to more profitable growth; eBay provides sufficient capital for PayPal; and commerce and payment platforms are converging.

Icahn, who owns more than 2 percent of eBay, last week shifted gears in his efforts to separate the two entities, calling on eBay to sell 20 percent of PayPal in an initial public offering rather than completely spinning the unit off, as he had recommended earlier. He has also nominated two people to sit on eBay’s board of directors. Icahn said selling off only part of PayPal would retain the benefits of a stand-alone PayPal while maintaining the efficiencies of having eBay and PayPal together. Icahn believes PayPal would generate a higher valuation as a stand-alone publicly traded company than it does as a subsidiary of eBay and that the payment company could use its own stock to fund growth and acquisitions.

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