EBAY has to be one of the biggest losers coming out of Apple’s introduction of Pay mobile payment service earlier this week. Pay is a very promising service and will be a massive competitor to EBAY’s Paypal division. Carl Icahn, the seventh largest shareholder of EBAY, had been pushing the company to spin-out of their faster growing Paypal division in an effort to unlock shareholder value. That never happened and eventually both sides agreed to “work together” as Icahn got seats on the board.
In the weeks leading up to Apple’s Sept 9th product launch event, EBAY shares had sold off more than 11% from the Aug 27th highs, making a new 2 month low this morning:
This morning’s stock reversal and subsequent spike in options volume is the result of unsubstantiated rumors that Google is looking to take a large stake, possibly as high as 40%. Per Bloomberg:
EBay Gains Amid Google Stake Speculation on Twitter
2014-09-12 15:02:10.276 GMTSept. 12 (Bloomberg) — EBay gains as much as 4.7%, most intraday since Aug. 21, on 1.8x 3-month daily avg. vol.
* Unconfirmed traders/trading sites including @OpenOutcrier, @theflynews, @livesquawk cite unconfirmed speculation that Google could take a stake in EBAY
This deal would make perfect sense given AAPL’s impending threat to both Google and EBAY, but the right price and the nature of the collaboration would ultimately decide just how much the combining forces could fend off the Apple threat.
In the latest leg of the bull market, EBAY has been a serial under-performer, despite a very reasonable valuation, a strong balance sheet and healthy expected growth. Large cap tech investors clearly see serious risk to their existing business model and have discounted future relevance given what seems like no shortage of competition in eCommerce from the likes of AMZN and possibly Alibaba in the very near future, but also in Payments from AMZN, Banks, Google etc etc etc.
I would add one more thing – if the Google rumor has some truth to it, I would expect that MSFT or FB could get in the mix, and you could see a bidding war.
Since I started writing this post, the stock has given back some gains, it was up almost 4.5% earlier, now up 1.6% on the following headline:
*EBAY SAYS HAD NO CONVERSATIONS WITH GOOGLE ON STAKE: REUTERS
But this sort of deal makes perfect sense and could put a floor in the stock in the near term. I suspect this would be the sort of quick out that Carl Icahn would LOVE resembling his recent success in FDO.
Here is the one day chart showing the spike and now the give back since I started writing:
I would just emphasize that the rumor, even if unfounded, is just one more example of the value in EBAY’s underlying businesses.
So what’s the trade?…
My trade right now is to Buy stock at current levels $51.60, and will keep a tight stop as I HATE buying stock on a rumor that has the stock up sharply, but this one makes sense.
Another trade that makes a lot of sense, defines risk and gives the idea some time to play out would be buying the April 2015 55/65 call spread for less than 2.00.
But in this case, like in TWTR back in late July, I am just going to be long the stock as I see near term downside to about $48, but a likely pause at $50.