Talking Numbers

Why Icahn is wrong on eBay

Why Icahn is wrong on eBay

Carl Icahn is mad as hell, and he's not going to take it anymore. In the latest explosive salvo fired at eBay management, the billionaire activist investor took to Twitter and railed against the company's CEO, tweeting:


— Carl Icahn (@Carl_C_Icahn) March 10, 2014

eBay was going to have none of that. In a message to the preess, the company says:

"John Donahoe has delivered astounding results for eBay shareholders since he became CEO in 2008. In the five years since John's first analyst day, eBay's stock price has increased more than 460%, significantly outpacing both the Nasdaq and the overall market. John's track record of success at eBay, driving the company's turnaround and growth, is well documented. Yet in pursuit of his own profit motives, Carl Icahn has made another unsubstantiated attack on John. Just like his previous ones, this attack is false and misleading and has already been utterly discredited by the facts."

But the fighting didn't stop there. Later in the day, in an exclusive interview with CNBC, Icahn unleased another round of fury on eBay management:

"What qualifies you [to be an eBay boardmember]? To be a crony of Donahoe and allow him to take $4 billion – in one way or another – sell Skype and lose $4 billion, to also allow the Kinetics deal to go through, and also have a record that is extremely poor against Amazon and Visa. This company is the quintessential example of what is wrong with governance in corporate America."

(Watch: Carl Icahn criticizes eBay—again)

In 2009, eBay sold its 65% stake for $1.9 billion to a group of investors that included eBay board member Marc Andreessen's Andreessen Horowitz. Two years later, the company was sold $8.5 billion to Microsoft. Had eBay continued to own 65% of Skype, it would have yielded them a $3.74 billion profit assuming, of course, they were able to have gotten the same deal out of Microsoft as the subsequent investors did.

One portfolio manager thinks Icahn is wrong about Donahoe's competency.

"I think [Icahn] is wrong on this one," says John Stephenson, portfolio manager at First Asset Investment Management, who is long eBay shares along with his company. "[eBay] is a great company I think it's one that investors should be looking at."

Stephenson believes the true value of Skype will be hard to determine since it was never a stand-alone company when eBay sold its stake in 2009. "And, then comparing it to Amazon or other companies that have been firing on all cylinders – the other part of [Icahn's] argument – doesn't hold water, either," says Stephenson. "The reality is Donahoe has done a great job as CEO."

(Read: )

Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, believes eBay is a buy as well, but because of the technicals and because Carl Icahn has invested in the company.

"I don't know about the job that the CEO is doing," says Ross. "But, I know about the job that Carl Icahn is doing and I think investors are served well to do exactly what he's doing in this case, which is to be a buyer of eBay's stock."

Though eBay was up 65% in 2012, it traded in a slightly downward-sloping trend channel for 2013 and the beginning of 2014. That changed a few weeks ago when Icahn announced his interest in the company. That caused a spike above the trend channel, which Ross says is a bullish flag pattern that could add another 40% or more to the stock.

"There could be as much as $25 on the upside if my technical work is correct – and, occasionally, it is," says Ross, who gets to a target of an additional $25 because the trend channel it broke from was $25 wide. "I would be a buyer here of eBay just on the chart alone."

To see the full discussion on eBay with Stephenson on the fundamentals and Ross on the technicals, watch the video above.

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