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Google’s answer to Bill Gates: BUY EBAY! February 8, 2008

Posted by deminvest in ebay, goog, Google, growth stock, Internet stocks, investment, MSFT Microsoft stock, nasdaq, Nasdaq stock, risky investments, stock I own, stocks, Yahoo, YHOO.
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Google could fire back to Microsoft: EBay is there: a cash generating machine, with its belly full of sitting dollars, without a CEO (Meg is going to step down) and unable to pursue the easiest strategy of a market leader on three key markets:

1) Auctions

2) Online payments

3) Online telephony

Let’s start with numbers:

Ebay’s market Cap is only $37.67B. If Google had to pay a 50% premium on that it would cost $45 B to swallow it.

Ebay has $5B cash that Google would seize. Google has $14 B cash.

Google should then borrow $26B to buy Ebay paying cash. No big deal considering the fact that Google has EBITDA of $6.05B a year, growing fast and EBay has EBITDA of $2.61B, also growing fast. The combined company would probably pay all debts in 4 years. Much less if growth of its businesses continues as expected.

Google could also pay half in cash and half in stocks facing a dilution of just 15%.

Now that it is clear how affordable Ebay would be.

Antitrust Authorities shouldn’t complain with such merger, because Ebay does no sell advertising. The merger would not reinforce Google’s domination of Ads markets. Google was so unsuccessful in its effort to build an E-commerce platform or a payment system that a GBay wouldn’t change much on those markets either.

Now let’s loom at the strategic advantages for such merger:

A merger Ebay-Google could simply change the World!

Imagine all Adsense money, about $6B a year, flowing trough Paypal accounts: It would create a Googleconomy, skipping the banks. Advertising, selling and buying using the same virtual money, one wouldn’t even need to have a bank account or a credit card… specially if you combine all that with Google’s new phones and with Skype telephony.

Also Google would easily solve EBay’s main problem: lack of technology. EBay’s website would become a modern Web 2.0 marketplace, would be fast like Google, easy to use like Google and well designed like Google.

Both companies have growing revenues (Google 50.60% year on year Ebay 26.80%) and are amazingly profitable ( EBITA around 30% of their growing revenues for both).

GooBAy would be uncontested Word leader in:

1) Online Advertising

2) Online Auctions

3) Online Payments

4) Online Telephony

5) Online Video

6) Online Technology

I agree with  Ankesh, when he says that even for Microsoft, Ebay would be a better prey than Yahoo.

I don’t think MicroYahoo could do much to face an Internet giant like GooBay!

Comments»

1. deminvest - February 8, 2008

… Eh Eh I forgot to mention than, being EBay my largest stock holding, such a merger would bring me very good earnings…

2. Jass - February 8, 2008

I think google should also buy etrade
This would be a valuable addition to google finance

3. jeff - February 8, 2008

paypal (owned by ebay) is google’s rival in online payments (google checkout). their corporate philosophies are very different, and would probably not bode well for integrating the two companies (or employees, for that matter). google has a history of looking to companies whose philosophies are similar to that of their own.

4. deminvest - February 8, 2008

COuld be a good idea Jass. Or even nicer they could buy zecco.com, which offers zero cost commissions and survives with Advertising ( like Google) and with money laying on its bank accounts.

5. deminvest - February 8, 2008

Jeff, one of the main factors that made Google succesful was copying Ebay’s auction system to sell its text advertising, instead of displaying banners like every other search engine. Their philosophies are not that far.

Google checkout is a complete failure. It never managed to compete with Paypal.

If you look back at Google’s main acquisition, you will see that Google tried to compete with Youtube with its Google Video. When it was clear that Google Video was a failure and could not compete with Youtube, Google decided to buy Youtube.

They should do the same with EBay and Paypal

6. jeff - February 8, 2008

google uses an “auction” to sell it’s text advertising. the auction is completely automatic and processed by software, not by humans who try to one-up each other by placing subsequent bids. the use of the word “auction”, which eBay did not invent, is about where the similarities end.

google’s aquisition of youtube is nothing at all like a potential ebay deal.

don’t get me wrong, i’d be happy if google bought ebay and revamped the whole site. ebay, like paypal, started out as a great company and got progressively worse as it came under new management.

unfortunately, it wont happen, because it’s not a good business move at this point in time.

7. deminvest - February 8, 2008

Jeff, you’re right, Adsense auctions are quite special.

What I actually menat was Adwords auctions, which are more similar to Ebay’s process: there is “humans who try to one-up each other by placing subsequent bids” to obtain first places for their listing on certain words.

It seems simple today, but it was a great idea when all search engines were just selling colorful banners at set prices.

It was basically the same idea that made Ebay bloom: E-commerce works better if prices are not set by someone, but are the result of a bidding process in which human customers outbid each-other.

I agree 100% with you when you say: “i’d be happy if google bought ebay and revamped the whole site”, but I go further: happiness of customers means big business for any company.
If Ebay.com, Payal.com, skype.com, buy.com … sites were revamped by Google engineers, their sales and profits would grow much faster.

Doesn’t sales and profits growing much faster for and already healthy company sound like a good business?

if you compare that to Youtube, which so far hasn’t earned a cent, it looks even greater.

8. seratjati - February 8, 2008

@ 7, 100 % agree with you, problem is for member all private data will run on to one single party. it is very big problem will be is’n it?, if google buy ebay then only one part leave, presidency election run by them.
and further case of youtube would be same with paypal and G checkout

9. Dylan - May 23, 2010

i know this article is old, but I want to comment any way. People could also use Google Ads to promote Ebay items, and all from one account if this merger happens.

10. deminvest - May 24, 2010

Thanks for commenting Dylan.

It is an old article, but I do still see Ebay as the perfect prey for a merger.
Ebay is such a lousily managed company that they sold for peanuts Skype, which is Worlds best Telecommunication company. When I wrote the article they were leaders on 3 wonderful markets. They are now only leaders in 2.

I agree that using Adwords to promote Ebay items using the same account would be an excellent option. Also paying for them with Paypal would save time to customers.

As Ebay and Google stock holder, I hope they soon merge so Ebay gets the great management it deserves.


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