Bernstein anticipates that eBay (NASDAQ:EBAY) may boost its buyback program following the expected closure of a private equity buyout of Adevinta on May 29th.
This transaction will free up approximately $2.4 billion of eBay's equity stake in Adevinta on a pre-tax basis, with the potential for an additional $1 billion over the next six months if the buyers exercise an option. Combined, these amounts represent 9% and 13% of eBay's market cap, respectively.
eBay is selling about 227 million of its 404 million Adevinta shares for $2.4 billion pre-tax and will retain an 18% stake in the new entity.
Additionally, the consortium has an option to buy another 10% from eBay, which could yield over $1 billion in pre-tax proceeds. Analysts note, "We expect/hope to see management upsize its capital return program," though no commitment has been made yet.
Analysts are calling for an accelerated buyback program beyond the current $2 billion already underway, in line with eBay's history of capital distribution from monetizing equity stakes.
The firm states that if eBay utilizes around $2 billion post-tax for buybacks, it could lead to a 7-8% EPS upside, and if the additional option is exercised and quickly paid out, this could imply a 10-12% EPS upside.
While alternatives like reinvestment and debt reduction are possible, analysts highlight that eBay has generally avoided big deals and has sufficient organic free cash flow to support smaller acquisitions or other strategic investments.