June 16th, 2008
eBay: New belle of Microsoft's merger ball?
Microsoft has $44 billion or so burning a hole in its pocket, but there’s one little hitch: There are few companies that the software giant could buy to get scale quickly. Enter eBay. Enter speculation. Enter eBay as the acquisition target.
Sure, eBay has opened up its platform to third party developers. And eBay even opened up PayPal too. The eBay announcement gave me a headache–I hit my head on the keyboard after falling asleep reading the statement (Techmeme).
But eBay as a takeover target? Now things get interesting even though analysts are largely guessing.
To wit: Stifel Nicholaus analyst Scott Devitt says he thinks it’s possible that Microsoft would acquire a stake in PayPal and Skype (see Tech Trader Daily for the details). Devitt connects Microsoft’s cash-back programs for folks that buy goods through MSN have shown up on eBay. Microsoft also offers PayPal deposits.
Thin evidence of a brewing deal? You bet. Worth making the connection. Yup.
This eBay-Microsoft line of thinking isn’t uncommon. Bernstein Research analyst Jeffrey Lindsay makes the same point in a research note Monday:
We think that eBay could potentially attract a Microsoft-like suitor in the future, especially if performance in the core business fails to improve; this is primarily because PayPal or Skype could be potentially spun out to make the economics of an acquisition work.
Add it up and one analyst has Skype as a reason for a purchase and another citing the service as a spin-off. Bottom line: Microsoft is buying something–and eBay is a big something.
Meanwhile, eBay may be a better idea. Consider the following stats via Yahoo Finance:
- eBay’s market cap is higher than Yahoo’s ($37.6 billion to $32.3 billion);
- eBay has more revenue than Yahoo a year ($8.1 billion to $7.1 billion);
- Forward price to earnings ratio for eBay is 14.63 while Yahoo’s is 38.45;
- Quarterly revenue growth year over year is 8.7 percent at Yahoo while eBay is posting growth of 24 percent;
- eBay has annual EBITDA of $2.71 billion compared to Yahoo’s $1.38 billion.
- eBay’s operating cash flow is $2.84 billion a year compared to Yahoo’s $2.27 billion.
Sure eBay has its problems and is in the middle of an overhaul. And yes, eBay isn’t the display ad/search Google gap closer that Yahoo may be. But clearly eBay as a business is less worse than Yahoo. I always assumed eBay would wind up with Amazon, but Microsoft would be justified writing a big check.
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
For daily updates, follow Larry on Twitter.
Subscribe to Between the Lines via Email alerts or RSS.
