Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

It's been almost a year since EBay gave in to Carl Icahn's demands by spinning off PayPal. Is StubHub next?

Sure, Icahn has since departed and there aren't any other activist investors currently agitating for change at the $28 billion online marketplace. But the idea has been a topic of speculation. It came up again this week when Benchmark analyst Daniel Kurnos said in a note that he expects EBay to "eventually" realize the value of StubHub through a sale or IPO.

Bid-Ask
EBay, which also owns StubHub, has seen its shares trade sideways over the past two years
Source: Bloomberg

StubHub is still relatively small. The business, which EBay acquired in 2007, accounted for just over 8 percent of total revenue in 2015. But let's recall: Back in 2002, PayPal generated 7.9 percent of EBay's revenue and by last year, that figure approached 50 percent.

As with PayPal, there's growth potential for StubHub -- perhaps to the point where it justifies becoming a stand-alone again. Either way, shareholders can expect to share in the spoils in the interim as EBay expands the ticket business. 

StubHub is already heading in the right direction as it hunts down industry leader Ticketmaster, an arm of Live Nation Entertainment. In February, the company inked a deal to become the official ticketing partner of the NBA's Philadelphia 76ers -- ok, not the hottest seats in town, but it marked StubHub's first steps towards becoming a destination for primary tickets, not just resales. At the time, its president Scott Cutler said it was part of StubHub's "evolution," which suggests there's more to come.

It also means folks shouldn't be surprised to see StubHub biddng more aggressively to secure coveted partnerships in the future. The company may be learning from its mistakes -- its antitrust lawsuit against the Golden State Warriors and Ticketmaster, which was dismissed last year, could have been avoided if StubHub outbid Ticketmaster to become the Warrior's official resale partner in the first place.

Admit (More Than) One
Primary and secondary markets for tickets have estimated growth rates of 5-7% and 9-14% respectively
Source: Benchmark, Technavio

EBay hasn't hesitated when it comes to acquisitions. For PayPal, it forked out over $1.3 billion for payments startups including Paydiant, Braintree and Zong. And for StubHub, after organic expansion into the U.K., Germany and Mexico, Ebay last month spent a reported $165 million on Spanish rival Ticketbis, which has a presence in 47 countries.

To bulk up further, Benchmark's Kurnos reckons it should consider acquiring U.K.-based rival Viagogo. StubHub already competes in the U.K. against Viagogo, as well as Seatwave and GetMeIn! (both owned by Ticketmaster). Plus, if it wants to solidify its position as the top ticket reseller in the U.S., it could snap up third-placed Vivid Seats, which is backed by Vista Equity Partners.

Rip It Up
StubHub, which leads in U.S. ticket resales, could become a bigger threat to Ticketmaster by competing for more primary sales or even snapping up smaller rival Vivid Seats.
Source: Consensus estimates, Benchmark

StubHub is attempting to spur growth by recommending specific tickets and appealing to users with virtual reality technology, which lets them check out a 360-degree view of potential seats. And because the "take rate," or commission it makes from transactions, is 20.4 percent, compared with 7.7 percent for EBay's marketplace business, its impact on the bigger company's bottom line will be more meaningful over time. 

Spinoffs are mostly designed to unlock shareholder value. If StubHub's earnings are adequately reflected in EBay's shares, there'll be no reason for it to go the way of PayPal. If not, expect a sequel. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net