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Ebay cuts 2,400 jobs as it considers sale or IPO of enterprise unit

Ebay cuts 2,400 jobs as it considers sale or IPO of enterprise unit – EBay Inc. is cutting 2,400 positions after reporting weak holiday sales and forecast sluggish revenue growth, underscoring the competitive challenges facing the marketplace business as it prepares to operate on its own after a split.

The company announced a standstill agreement with activist investor Carl Icahn, who had pushed the company to split up, and added three new board members. EBay also said it’s exploring options for its enterprise unit, including a sale or initial public offering.

Chief Executive Officer John Donahoe is splitting off EBay’s PayPal payments division, which will free up the unit to seek alliances with other retailers and compete against a new crop of online-payment providers. EBay’s main marketplace, an operation with roots stretching back to Web commerce’s early days, is facing intense competition from Amazon.com Inc. and has responded by updating its look and forging retail partnerships.

Revenue in the current period will be US$4.35 billion to US$4.45 billion, the San Jose, California-based company said in a statement on Wednesday, a prediction that fell short of analysts’ projection for US$4.71 billion, the average of estimates compiled by Bloomberg. Sales in the fourth quarter rose 9% to US$4.92 billion, the slowest holiday-quarter gain since 2010.

“My real concern is how the marketplace continues to lose ground in the e-commerce world,” said Kerry Rice, an analyst at Needham & Co. in San Francisco. “They are showing tremendous deceleration.”

Holiday Shopping

The year-end holiday shopping season was a record for Web retailers, which were estimated to have sold about US$61 billion worth of merchandise in November and December, according to ComScore Inc. EBay’s sales growth lagged behind Amazon’s, however, with same-store sales climbing 5.8% in December, compared with Amazon’s 22%, according to ChannelAdvisor.

Fourth-quarter net income was US$936 million, or 75 cents a share, up from US$850 million, or 65 cents, a year earlier. Excluding certain costs, profit was 90 cents a share, compared with analysts’ average estimate of 89 cents.

Restructuring charges related to the job cuts, which will affect 7% of EBay’s workforce, will be US$350 million to US$400 million in 2015, the company said.

The shares of EBay rose in extended trading after the results were announced. The stock declined less than 1% to US$53.37 at the close in New York, leaving it down 4.9% this year after climbing 2.3% in 2014.

Board Members

Frank Yeary, Perry Traquina and Jonathan Christodoro will join EBay’s board, the company said. Christodoro was nominated by Icahn as part of the standstill agreement with the activist investor.

Standstills generally include limits on how much stock an investor can amass and agreements on shareholder voting and governance. Icahn’s deal includes “certain corporate governance provisions to be adopted by PayPal” after it separates from EBay, the company said today.

EBay built up its enterprise business with Donahoe’s US$2.4 billion acquisition of GSI Commerce Inc. in 2011, an effort to boost revenue by helping big retailers manage their websites and inventory. The company was seeking to compete on the business side with Amazon by making itself a ready partner for retailers that wanted to streamline their online, mobile and traditional businesses.

In the statement today, Donahoe said that even though the enterprise unit is a strong business, “it has become clear that it has limited synergies” with either EBay’s marketplace or PayPal.

Corporate Split

EBay is planning to complete the spinoff of PayPal in the second half. Devin Wenig, currently president of EBay Marketplaces, will become CEO of the marketplaces business that will remain, while Dan Schulman, who joined PayPal from American Express Co., will be CEO of the stand-alone PayPal payments company.

“Our plans are on track to separate EBay and PayPal into independent companies in the second half of 2015, and we are confident this is the right strategic path for each business,” Donahoe said in the statement.

Donahoe and four other executives, including Chief Financial Officer Robert Swan, won’t join either successor company. Retaining those five executives until the deal closes will cost more than US$35 million, according to a regulatory filing

Bloomberg – With assistance from Beth Jinks in San Francisco.


 

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