Thursday, October 23, 2008

Is eBay Tight on Cash?

One of the reasons eBay is considered a value play by Wall Street, is they have always had a very strong balance sheet and earn lots of money every year. So it doesn't seem possible that they could be experiencing a cash crunch, does it? After all they had $5 billion in cash at the end of 2007 and zero debt and they are always very profitable. They even bought back $4.2 billion in stock by the end of Q1 2008, almost 10% of the shares outstanding.

As of the Q3 earnings call, they have $3.3 billion in cash, $2.9 billion of that is off-shore and they would be taxed heavily if they brought it back on-shore.

Where is the cash going? (Source Seeking Alpha earnings call transcripts)
  • eBay ended 2007 with $5 billion in cash.
  • At the end of Q1 2008 eBay had around $4 billion in cash.
  • At the end of Q2 2008 eBay had $3.7 billion in cash; $2.9 billion of that total off-shore
  • At the end of Q3 2008 eBay had $3.3 billion in cash; $2.9 billion off-shore
In 2008 eBay has bought back over $2.1 billion in shares through Q3, there have been no substantial acquisitions prior to those announced in Oct. So, in less than a year eBay's cash position has gone from $5 billion to $3.3 billion with all but $400 million of that money off-shore. 

It is nice to see that eBay has given money back to shareholders by buying back shares but hasn't really helped investors -- the share price is still in the tank at less than $15. With the acquisitions announced in Oct. eBay will shell out $1.3 billion to acquire Bill me Later and several classifieds sites. $1 billion of that will be coming from their credit line. For the first time ever eBay will be borrowing money.

The Bill Me Later acquisition also brings $500 million in short term debt to the eBay balance sheet. With all of these moves and the companies guidance for a slow 4th quarter, the eBay balance sheet may not look so valuable come their Q4 earnings call. 

Just my 15%

1 comment:

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