eBay Inc. (Nasdaq: EBAY) stock jumped 5% in after-hours trading this Wednesday and continued the gains on Thursday, for a 0.97% rise to $54.94.
Company earnings helped boost the stock, as the e-commerce company reported earnings of $0.81 per share, just beating analysts' estimates of $0.80. Revenue of $4.53 billion was an increase of 13% from last year.
eBay also announced Wednesday that it had authorized a $5 billion share buyback program.
But here's why that rally will be short-lived if the company listens to Carl Icahn...
Carl Icahn's eBay Plan
Activist investor Carl Icahn called for eBay to split from its popular payment unit PayPal.
In its earnings press release, eBay reported that Icahn had submitted a proposal for PayPal to spin off into its own company. Icahn also nominated two of his employees to the "spinoff" company's board of directors.
After eBay made the proposal public, Icahn stated that he owned 0.82% of eBay's shares outstanding.
While eBay officials politely stated that they take the opinions of all their shareholders into account, they certainly didn't sound thrilled with Icahn's proposal.
"We believe that our collection of assets drive more growth and more success together, than apart," eBay CEO John Donahoe said. "The eBay marketplace accelerates PayPal's success; the eBay marketplace provides data that makes PayPal smarter."
PayPal is the fastest-growing part of eBay's business, having posted sales growth of 19% last quarter. That's compared to 12% growth for eBay's traditional "marketplace" division.
The marketplace is still the cash cow for eBay, as it accounted for $2.4 billion in profit through the first nine months of 2013. PayPal accounted for $1.1 billion during that period.
It's clear that eBay officials, particularly Donahoe, don't agree with Icahn's plan for the future of eBay and PayPal.
Activist investors like Icahn frequently scoop up large quantities of a company's stock and make demands that would theoretically benefit shareholders. Share buyback programs and sell-offs are typical requests.
But there's a problem...
"[Activist investors] can be a catalyst for investors to make some short-term profits, but what I worry about is what's going to happen in the long run," Money Morning's Defense & Tech Specialist Michael Robinson told FOX Business' Stuart Varney. "Specifically with eBay, I think Icahn is crazy on this one."
"PayPal is a very important part of that company. It's the fastest growing division. It's 45% of the company. The digital-payment world is the world of the future, so they would be insane to sell, especially because Icahn only owns 0.8% of the stock," Robinson said.
So here's what Icahn's actions mean for eBay stock...
How to Play EBAY Stock
EBAY stock has been very volatile in the last year and has a 52-week range of $48.06 to $58.04. Overall, the e-commerce stock is up 2% in the last year and 5% in the last three months.
As mentioned, eBay's earnings beat projections by a penny, but revenue came in under expectations. According to the company, the fourth quarter typically accounts for 30% of its yearly revenue.
eBay's forecast for the first quarter of 2014 was also underwhelming. The company projects $4.15 billion to $4.25 billion in revenue, much lower than analysts' forecasts of $4.3 billion.
eBay expects Q1 earnings between $0.65 and $0.67. Analysts had targeted $0.72 for Q1 EPS.
Analysts are understandably skeptical of EBAY stock moving forward. Today (Thursday), analysts at Stifel Nicolaus downgraded eBay from a "buy" to a "hold." Likewise, Susquehanna analysts downgraded the stock from "positive" to "neutral."
Even eBay CFO Bob Swan shared some uninspired words during Wednesday's conference call.
"We didn't generate the monetization we had planned exiting 2013, giving us less momentum entering the new year," Swan said. "Competition is increasing and consumer expectations are rising, and we are making the investments to expand our served market."
Trading just above $54, and with Icahn's involvement adding uncertainty to the company's future, now is not the time to buy eBay stock.
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Carl Icahn Pressing eBay For PayPal Spinoff, Board Sets
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Icahn Calls for eBay to Split Up
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