EBay: Unwinding and Adding On

by Brenon Daly

For a company that essentially matches buyers and sellers, eBay (EBAY) has been doing a lot of dealing of its own this week. It has picked up a controlling stake in Gmarket (GMKT), the South Korean online auction house. When we wrote about this possible deal in mid-August, we noted that eBay was willing to pay a not-insignificant premium for Gmarket. Makes sense, given that international sales have been growing more than twice as fast as US sales in recent quarters. (Ebay reports first-quarter earnings next Wednesday.)

The acquisition of a chunk of Gmarket, which is eBay’s first purchase since November, comes as the company also moved to unwind a pair of previous purchases. In the more straightforward of the two, eBay said it will sell StumbleUpon back to the founders of the online bookmarking site. The divestiture comes two years after eBay paid $75m for the property.

We would note that the deal is actually the second sale of an online bookmarking site in the past month. In mid-March, LookSmart divested its Furl property to Diigo, picking up an undisclosed chunk of equity in its privately held rival. While neither transaction performed as the acquirer had hoped, LookSmart (LOOK) did indeed look smarter than eBay because it paid only $1m for its flier on Furl, compared to the $75m that eBay handed over for StumbleUpon.

Rather than go the same route of divesting to former owners, eBay hopes to find a whole new set of buyers for its planned unwinding of Skype. It plans to spin the VoIP vendor to public market investors next year. (We’ll withhold comment on the rather unconventional ‘dual track’ that eBay has now set up for Skype. Just as we’ll withhold comment on the fact that ‘Skype’ rhymes with ‘hype.’)

If it’s lucky, eBay may see the division valued at about half of the $4.1bn that it spent on Skype (including earnouts) back in September 2005. EBay has already acknowledged that it overpaid for Skype, writing down some $1.4bn of the purchase price. While reports have indicated that Skype’s initial founders may be trying to repurchase the company from eBay (a la StumbleUpon), it appears those talks have ended. Still, we could very well see Skype getting snapped up in a trade sale before it hits the public market next year. In a mid-October report, we noted that any of the telcos or even Nokia (NOK) might be interested in owning the largest VoIP provider.

eBay deal flow

Year Deal volume Deal value 2009 0* $0* 2008 4 $1.5bn 2007 3 $385m 2006 2 $75m 2005 7 $5.1bn

Source: The 451 M&A KnowledgeBase *Excludes purchase of controlling stake of Gmarket

Comments

[a. palmer jr.:]

I'd just like to see ebay return to the company it used to be, without all the gimmickery they have now. I thought they used to be an honest, thoughtful company. I don't feel as comfortable dealing with them right now.

Apr 17 08:31 PM

[Gateridge:]

Looks like eBay is going down, failed acquisitions, terrible moves in the marketplace (competing with Amazon, what was that?), and now trying to buy it's way out of all those bad decisions. eBay buying GMKT is just to keep the stink off the books by showing some growth (or future growth). I'm afraid what we are all watching at eBay is the end of a company that's lost it's focus and failed to execute repeatedly. Thankfully eBay kept there distance from Paypal the only bright spot in the company. 75 million for stumbleupon what were they thinking :)

Apr 20 09:57 AM

[Technologis...:]

** Unwinding Ebay and Paypal **

Ebay programatically suspends ebay user accounts and freezes paypal funds while researching issues. Paypal (ebay owns 20% of Paypal) funds are frozen for around 21 days with Paypal and Ebay earning interest.

No telephone support at Ebay in 2009!

Ebay business processes and lack of customer support have impacted many customers. A successful class action lawsuit was filed against Paypal in 2003 for frozen funds. A similar class action lawsuit is likely in 2009.

Recommendation: Abandon Ebay and Paypal
Alternative: Craigslist and Google Checkout

Sep 18 11:07 AM

[Thomas R.:]

eBay owns 100% of PayPal. eBay owns ~20% of Craigslist


On Sep 18 11:07 AM User 488157 wrote:

> ** Unwinding Ebay and Paypal **
>
> Ebay programatically suspends ebay user accounts and freezes paypal
> funds while researching issues. Paypal (ebay owns 20% of Paypal)
> funds are frozen for around 21 days with Paypal and Ebay earning
> interest.
>
> No telephone support at Ebay in 2009!
>
> Ebay business processes and lack of customer support have impacted
> many customers. A successful class action lawsuit was filed against
> Paypal in 2003 for frozen funds. A similar class action lawsuit is
> likely in 2009.
>
> Recommendation: Abandon Ebay and Paypal
> Alternative: Craigslist and Google Checkout

Sep 18 02:16 PM