Could eBay Be a Microsoft Takeover Target?

Microsoft (MSFT) has $44 billion or so burning a hole in its pocket, but there’s one little hitch: There are few companies that the software giant could buy to get scale quickly. Enter eBay (EBAY). Enter speculation. Enter eBay as the acquisition target.

Sure, eBay has opened up its platform to third party developers. And eBay even opened up PayPal too. The eBay announcement gave me a headache–I hit my head on the keyboard after falling asleep reading the statement (Techmeme).

But eBay as a takeover target? Now things get interesting even though analysts are largely guessing.

To wit: Stifel Nicholaus analyst Scott Devitt says he thinks it’s possible that Microsoft would acquire a stake in PayPal and Skype (see Tech Trader Daily for the details). Devitt connects Microsoft’s cash-back programs for folks that buy goods through MSN have shown up on eBay. Microsoft also offers PayPal deposits.

Thin evidence of a brewing deal? You bet. Worth making the connection. Yup.

This eBay-Microsoft line of thinking isn’t uncommon. Bernstein Research analyst Jeffrey Lindsay makes the same point in a research note Monday:

We think that eBay could potentially attract a Microsoft-like suitor in the future, especially if performance in the core business fails to improve; this is primarily because PayPal or Skype could be potentially spun out to make the economics of an acquisition work.

Add it up and one analyst has Skype as a reason for a purchase and another citing the service as a spin-off. Bottom line: Microsoft is buying something–and eBay is a big something.

Meanwhile, eBay may be a better idea. Consider the following stats via Yahoo Finance:

• eBay’s market cap is higher than Yahoo’s ($37.6 billion to $32.3 billion);
• eBay has more revenue than Yahoo a year ($8.1 billion to $7.1 billion);
• Forward price to earnings ratio for eBay is 14.63 while Yahoo’s is 38.45;
• Quarterly revenue growth year over year is 8.7 percent at Yahoo while eBay is posting growth of 24 percent;
• eBay has annual EBITDA of $2.71 billion compared to Yahoo’s $1.38 billion.
• eBay’s operating cash flow is $2.84 billion a year compared to Yahoo’s $2.27 billion.

Sure eBay has its problems and is in the middle of an overhaul. And yes, eBay isn’t the display ad/search Google (GOOG) gap closer that Yahoo (YHOO) may be. But clearly eBay as a business is less worse than Yahoo. I always assumed eBay would wind up with Amazon, but Microsoft would be justified writing a big check.

Comments

[VSD:]

They should have gone after ebay instead of Yahoo. Ebay gives them ecommerce, advert, voip and paypal. Probably the most undervalued stock in internet space today.

2008 Jun 16 03:32 PM

[Texrat:]

Interesting idea...

2008 Jun 16 04:17 PM

[Deep Value:]

GOOG's cloud computing is giving word doc's and other apps away for free and paying for it with Ad Revenue.

Nobody's going to buy Word or Powerpoint anymore.

What MSFT needs is enough search Ad Rev. to make their Device Mesh model (same as cloud computing) profitable. Hense the deal with HPQ but it won't be enough. MSFT needs YHOO for the AD Rev. And they won't be buying something just to buy something.

They need search to keep their apps from becoming obsolete. MSFT offered to buy YHOO's search because they need the daily eyeballs it attracts.

2008 Jun 16 04:27 PM

[Deep Value:]

EBAY attracts alot of eyeballs but not as much as search. If MSFT's cash is burning a hole in their pocket they should raise the dividend. EBAY is extremely complex and not in the direction I think MSFT wants to go.

2008 Jun 16 04:31 PM

[buyforeclos...:]

msft SHOULD buy back SHARES! INCREASE DIVIDEND! NOT BUY A COMPANY WITH A 56 p/e! YEAH THERE FORWARD P/E IS A PIPE DREAM! THAT COMPANY IS GOING DOWNHILL AND I PREDICT A TON OF LAWSUITS AS THEY RUN A VERY LEAKY SHIP OVER THERE..I DONT EVEN USE IT ANYMORE AS i GOT SCAMMED MORE THAN A FEW TIMES... YHOO AT $30 A SHARE WOULD HAVE BEEN THE TICKET AND RIGHT NOW THEY WOULD TAKE IT

2008 Jun 16 04:44 PM

[Alex Filonov:]

Microsoft wants to compete for the place where most of Internet money is. Right now it appears to be search. Meaning Google and Yahoo! I don't know how Ebay fits in here. Of course, auction business is a good business by itself, but I don't think Microsoft is interested. They want to own the world, not to run a good business.

2008 Jun 16 06:26 PM

[Network Effect:]

@ Deep Value - the value of Microsoft technology does not lie in the technology itself. it lies in the network around it. Microsoft has had inferior technology for years, but everyone continues to use it because everyone continues to use it. i realize that there may be free technology and better technology out there, but this has nothing to do with Microsoft's stranglehold on its market. It has to do with the network effect and it is almost impossible to unravel. Additionally, regarding eBay's eyeballs, I think you have been misinformed - there are more searches are done on eBay every day than on Google. And everyone searching on eBay is actually thinking about buying something so the value of their customer base is far greater than the value of a search engine's customer base. Additionally, most "customers" who use search engines are not actually customers of the search engine. Search engines are open networks which many believe is superior. however, I disagree. I think the walled garden will prevail in this race because processing transactions is a far superior business model to generating leads. This is why Google is trying to do things like Google Wallet and Google Base. They are trying to process transactions rather than generate leads because the vast majority of people who went and sold on Google are starting to go away because 90% of all clicks are on the top two spots. So, if you are not one of those two spots, it has minimal value to any individual merchant. So, as a result, they are all starting to go away. Ask any search engine marketer about it and they will tell you it is getting harder and harder to get clicks out of Google because they are all going to a smaller and smaller % of the merchant base.

Microsoft buying eBay never made sense before because eBay had a culture of innovation inside the company and Microsoft would have killed it. However, that culture of innovation is gone at eBay, and therefore an acquisition by Microsoft makes a lot of sense now. I just don't think the gov't would allow it.

2008 Jun 16 11:23 PM

[ThisIsCrap:]

This article has no merit and it's totally off the cuff. Sure, now that Yahoo is out of the picture, Microsoft needs to buy someone right? For analysts, the talking heads, and the person who wrote this article, let's just slap together two companies and swallow one whole. Microsoft buying eBay just becuase they are a debt free company with a lot of cash flow? Microsoft needs eBay like a fish needs a bicycle. C'mon writers, you can write something better than this. Stop stirring the pot. This will never happen. Gee, maybe I should become a writer on takeover specualtion. Looks like the only qualification you need is to throw your integrity out the window.

2008 Jun 17 04:00 PM