Why eBay should think big and be ready to buy
January 30, 2017 02:27 PM
(Bloomberg Gadfly)—Ebay Inc. has managed to right the ship. Now it's time to get sailing.
Investors cheered a fourth consecutive quarter of sales increases, and maintaining a full year of gains helped quiet concerns that without PayPal Holdings Inc., the subsidiary it split from in 2015, eBay would be left for dead.
It's no time for self-congratulatory pats on the back, though.
Growth initiatives touted by eBay management during its earnings call last week, such as ramping up millennial-focused TV advertisements and making it easier for consumers to find new stuff on its sites, just aren't aggressive enough to match eBay's grand ambitions to take on internet retailing behemoth Amazon.com Inc., No. 1 in the Internet Retailer 2016 Top 500 Guide. It has to move faster.
Sales growth online still outpaces that of traditional retail, but e-commerce in some parts of the world is starting to decelerate as the industry matures. Market contractions tend to usher in consolidation, and Amazon and Alibaba Group Holding Ltd. are getting bigger by the day. Wal-Mart Stores Inc. (No. 4 in the Top 500) is starting to understand that, which is why it recently shelled out more than $3 billion for a one-year-old company, Jet.com Inc., and boosted its stake in JD.com Inc., China's second-largest e-commerce play.
Ebay has made a number of smaller acquisitions, but much of its extra cash has been used to buy back its own stock. The group spent more than $3 billion on buybacks last year and said it'll spend a minimum of $1 billion to acquire shares this year.
Meanwhile, growth in active buyers at eBay, as well as the volume of goods purchased across its sites, is only limping along. And on Wednesday, the company's earnings forecasts for 2017 came in lower than what analysts were expecting. Projected revenue for the 12 months came in at the high end of estimates.
If eBay wants to scale up fast, it needs to think bigger.
The most natural fit would be Etsy Inc. (No. 23), the online marketplace for handcrafted goods whose shares have dropped well below its April 2015 IPO price. The popular website for gifts and quirky handmade items has a market capitalization of less than $1.5 billion. It could also consider online shopping portal Groupon Inc. (No. 26), which has executed its own turnaround in recent years and has a market capitalization of $2 billion.
Other options, albeit much larger, include Shopify Inc., the e-commerce platform that hosts websites for 325,000 smaller brands, and home-goods website Wayfair Inc. (No. 24).
With market values of $4.6 billion and $3.6 billion, respectively, those firms would be difficult for eBay to acquire without adding to its almost $9 billion in debt. But it could be the clearest route to pick up some real speed.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.