Seven Reasons Why Amazon and eBay Should Merge

Q2CY07 results from Amazon (AMZN) and eBay (EBAY) are out. eBay's results were so-so with slowing growth, whereas Amazon's results were super-hot reflecting 20% rise in its shares in after-market trading. Amazon's valuation has doubled in the last six months, reaching nearly $35 Billion. Jeff Bezos should use this opportunity to combine his company with another e-commerce powerhouse like eBay for the following reasons:

1. Both Bay and Amazon have excellent brand recognition and are leaders in their online commerce. Their businesses are complementary. Folks shop "hard-to-find" items at eBay whereas they go to Amazon for current and fast moving items. Both have some overlapping areas but at a macro level their business models are quite different and hence complementary to each other

2. Amazon/eBay would be a formidable combination with about $22 Billion revenues and market cap of about $80 Billion (assuming stock swap at no premium). It would become the number one destination for online shopping in many countries and would have an insurmountable lead.

3. There would be minimum anti-trust issues due to presence of online stores by big retailers like Walmart (WMT), Target (TGT), Macy's (M), etc.

4. Amazon/eBay as a combined company can save at least $500 Million (back of the envelop calculation) in operating, marketing and technology expenses. The tremendous user base (comprising of both buyers and sellers) would present significant opportunities to scale up the operations as well as cross-selling opportunities.

5. Amazon and eBay are fundamentally technology platform companies and the combined company can offer integrated services to its customers (buyers and sellers) and leverage range of services like PayPpal, Skype, stores and shipping plans.

6. What's in it for eBay: eBay's shares have been stuck for the last two years due to slower growth. eBay's shareholders would own about 60% of the combined company with much higher growth opportunities both domestically and internationally. Amazon would have access to eBay's userbase and excellent management. It would also be able to focus on international expansion - especially in China and India - and really take its recent momentum to next level

7. With the combined talent of Jeff Bezos and Meg Whitman, the combined company would have dream management team and would be ready to take on the Google (GOOG) juggernaut head-on. After a year of merger, it could think about taking over Yahoo (YHOO) to make it a true alternative to Google (provided that Microsoft (MSFT) does not buy Yahoo until then)

EBAY/AMZN 1-yr comparison chart

Disclosure: none