Thursday, August 09, 2007

What Should eBay Do With All This Money?

The Perfect Storm

The "Perfect Storm" is building over San Jose, California. eBay is sitting on $3.6 billion in cash, can borrow up to $3 billion more and has free cashflow of $1.3 billion. They are beating Wall Streets estimates each quarter and with the recent run-up on the stock eBay's Market Cap has grown by $6 billion in the last week.

Now is the time to strike if they are going to make a major move. So for fun, I thought I would lay out my plan. Granted, I haven't got a clue what all the ins and outs of M&A are and what follows is really just for fun. So take this with a grain of salt.

So what should eBay do with all this money?

  • Some analysts think they should initiate a one-time dividend of $3. This just doesn't seem like an eBay thing to do.
  • Others want them to buy back even more stock, maybe as much as $5 billion. This seems to be the approach that the majority of analysts think will happen.
  • Start acquiring smaller companies to fill out the holes in their business. While this seems to be the prudent approach, I don't see them loading up on a lot of little companies. Remember this is the perfect storm that is building. They need to do something big.
So what do I think? Well since I'm a blogger and not an M&A expert, I really am just having some fun but I think they need to do the following: (Now don't laugh at me or my feelings will get hurt)
  • First they need to buy Facebook but not spend anymore than $6 to $7 billion for it.
  • Next they merge with Yahoo. Many would say they don't have any real reason to merge with Yahoo if they had Facebook but I think owning Facebook gives eBay a ton more leverage in a deal with Yahoo and Yahoo certainly needs Facebook.
  • Lastly, once they have accomplished these two things they then can spin off PayPal.
I know many of you are saying, that is way too much to accomplish and I would agree but with all of the elements lining (the "Perfect Storm") up right now. If they were ever able to accomplish this, now would be the time.

Amazon, is aggressively challenging their marketplace business. Google, is certainly not going away. Facebook, will only get more expensive. PayPal, may face anti-trust pressure down the road. Yahoo, is struggling right now and the two companies would be a great fit. If not now - when?

BTW, on their own, none of these ideas are original -- except maybe a Facebook purchase, I seem to be the only one calling for that move. I have to thank OnlyeBay for the PayPal spin-off idea and a number of bloggers and analysts think the ebay/Yahoo merger makes sense. I believe though, that I am the only one in the entire blogosphere, who thinks all three should happen in this order. Maybe that makes me crazy - maybe not!

Just my 5 Cents!


Matthew C. Keegan said...

I like your suggestions. I think eBay will keep Paypal simply because they can control the whole payment processing through their site. Plus, Google Checkout will one day be a formidable competitor.

A dividend doesn't sound likely, but merging/buying Yahoo sounds intriguing and it could be the one thing that halts the Google juggernaut.

Sue Bailey said...

Yahoo have closed their classified ads service, so that's another area of overlap with eBay they've dumped.

I think it'll be Facebook first, but I also think something with Yahoo is very much in the air. They're flirting over dinner at the moment, and it'll be interesting to see what they make of it next.

Randy Smythe said...

I think a merger with Yahoo will gain steam as Jerry Yang finds he is not the long-term solution as CEO.

If eBay doesn't make a big move and Mitt Romney wins the Republican primary, then look for Meg to leave eBay and join Romney's campaign full-time. I think the only thing keeping her from doing this is the challenge of running the combined Yahoo/eBay.