With the cash position and the powerful currency Google (GOOG) has in its own share price, it seems crazy that it has not made an attempt to acquire eBay. It is more difficult to justify not acquiring eBay (EBAY) in this price range than it would be to actually buy it. It should be immediately accretive to earnings, both companies are highly profitable and would be a rare corporate marriage that would benefit the acquiree and the acquirer perhaps equally.
In a world of impetuous, hair-brained M&A activity, the word "synergy" has become a bit of a cliché. In the case of a holy union between Google and Ebay, the synergies are glaring. With the data Google possesses on web searchers and the ability to enhance eBay sales with all of its many properties, it would become a clear case of the whole being worth more than the sum of its parts.
Google has tried, and in my opinion, failed in the area of retail. I am fairly well integrated with Google as a consumer. For the past decade, I have routinely used their Search, Youtube (my account opened in 2004), Android, Adsense and Adwords. Despite using Google services every single day, I honestly could not remember what they even called that retail service. After looking it up for the purpose of writing this column, I have learned they call it "Google Online Store".
An eBay acquisition would not only make Google a major player in retail, it would instantly make them the dominant player in online payments by integrating it with their Virtual Wallet service. When you have billions of dollars in cash sitting around doing nothing and your stock is hitting new highs due to your profitability and marvelous execution, how can you go wrong acquiring a company that makes you a dominant player in retail - without having the risk of holding inventories? Both of these are businesses in which they have long wanted to be a player if not -the- player.
I like the quote from 24/7 Wall Street on Monday because it states it persuasively and succinctly.
A blog by 24/7 Wall St pointed out on Tuesday that UBS AG has added eBay to their Q-GARP list of stocks to buy. The blog pointed out that:
it is no secret that eBay has one of the most capital-efficient business models in e-commerce. The company has an operating margin of 20.9%. Plus, with the stock essentially flat over the past six months, now may be a great time for investors to take a long look at owning some. The UBS price target is $64, the same as the consensus target.
As one who is skeptical by nature of most mergers and acquisitions that seem to employ a "ready, fire aim" approach, I like to ask myself why the companies cannot accomplish their goals through strategic alliances instead of getting hitched. Pardon me for being crass but "why buy the milk when you can have the proverbial cow for free?" This actually should apply in the corporate world when often it does not.
Often a marriage is rightly expedited by the fact that an unmitigated beauty can have other rival suitors who could disrupt the courtship (or strategic alliance) when there are other handsome suitors who could also be attractive matches. In the case of eBay, many of the same goals could be achieved by another handsome, cash rich suitor with some of the very same synergies. In the case of Ebay, Apple, Inc, (AAPL) is also reportedly interested in further integrating PayPal and could as a corollary benefit handsomely by ownership of PayPal.
As another recent column noted:
While Paypal is not currently an option in any other stores, the move suggests Apple could be planning to bring the payment option to other countries as well.
Apple already has a nice annuity in itunes and could integrate eBay's auctions into the fold as well. Of course Apple's cash position is legendary if not infamous at this point and large shareholders want to see that cash astutely deployed or else paid in dividend. Apple's stock is at a point where it would not be best used for currency, but they more than offset that issue with their $130+ billion cash hoard.
Apple could easily make it work, but I think Google's Search and Adsense program would be a better fit for eBay as they could display items that are for sale on eBay on search results (where eBay currently advertises (apparently) and within blogs through the Adsense program.
The way for Google to integrate that would be to first of all, keep the eBay name. Ebay is iconic. As Google is to search, eBay is somewhat of a verb and a noun when it comes to online auction. Dropping the eBay name would be an arrogant and foolish move. In acquiring eBay, they would be acquiring the PayPal customers, and being a longtime customer of both, I couldn't care less what they call PayPal as long as it still works like PayPal. The name of PayPal in my opinion could be changed over to the Google brand without backlash by members or risk of devaluing the service.
Granted, I am long Google and eBay. I have been following the company for a long time. I wrote when I recommended ebay in February 2009 while eBay was $12.00 a share:
Ebay owns PayPal of course; so in my mind, you are getting one of these great companies for free with the purchase of a share.
However, with Ebay's share price languishing around the current $68 Billion market cap trading at a mere 25x earnings, in my opinion, anywhere from the $100 Billion to $125 Billion level could be a realistic acquisition price that could easily be made up by the likely increased revenue brought about through integrating both the retail and online payment service.