financial analysis of ebay
TRANSCRIPT
1Financial Analysis of eBay
Financial Analysis of eBay
Gary England
Campbellsville University
BA 620 – Managerial Finance
Dr. Sonny Onyiri
2Financial Analysis of eBay
Table of Contents
CHAPTER PAGEExecutive Summary......................................................................................................3Company History......................................................................................................... 5Competition...................................................................................................................7
SWOT Analysis..................................................................................................7Financial Analysis.......................................................................................................14
Annual Financial...............................................................................................14 Ratios................................................................................................................17 Economic Forecast............................................................................................18 NPV Ratios.......................................................................................................21
Recent Company News...............................................................................................22Conclusion....................................................................................................................22References....................................................................................................................25
3Financial Analysis of eBay
Executive SummaryThe following analysis has been completed after substantial research has been analyzed
in order to understand the eBay company and its surrounding factors. This includes an industry
analysis to understand the general type of business where eBay places its self and how they fit
into the industry as a whole. Following the industry analysis, I conducted an internal analysis of
the company and also its top competitors. With this information it is possible to gauge the eBay
company in regards to those in which they are competing to reach a broad understanding of what
needs to be completed internally to become a more successful company. With this previously
stated information obtained I will be able to apply my recommendations and strategies to solve
issues which are currently being seen in eBay. The final step in our company research and
analysis will come from forecast of the eBay financials to understand where they currently sit
and where they are and should be valued.
The internal industry analysis has been completed in order to understand the eBay
company and its competitors. This has been completed through the study of the industry value
chain, key success factors for the companies in this industry, an industry forecast and also details
for eBay and two of its main competitors, Yahoo! and Amazon. The steps in the process of
studying each of these companies individually provides us information on, in what areas the
business of eBay could be improved or retained in order to beat their competitors in this market.
These details can be used further as I move on into my strategic recommendation to increase the
performance of the company.
I have provided in-depth recommendations on what would benefit eBay and also how
these can be implemented within their company. The main focus of bettering the company’s
4Financial Analysis of eBay
success will be on retaining and growing their core business. This will allow their managers to
focus on the business in which they have the greatest expertise and also to offer a diversified
product. This section includes detailed steps on how each strategy should be used with the
company. Also included is a timeline of when each of these strategies should occur, in order to
maximize the benefits of my recommendations.
Finally, my research analysis involves financial forecasts for the company, including but
not limited to the actual worth of the company rather than where their company stands currently.
The previously mentioned topics will be discussed in detail here within, in order to conclude my
analysis for the successful organizational change to occur at eBay.
5Financial Analysis of eBay
Company HistoryeBay was founded by Pierre Omidyar's in his San Jose home in September of 1995, under
the name Auction Web. From its early beginnings it was meant to be a marketplace for the sale
of goods and services for a variety of interested individuals. It was incorporated in 1996, and has
since grown to become the world’s largest most financially successful online auction company.
After realizing the overall potential of his idea, Pierre and his cofounder Jeff Skoll brought on
Meg Whitman, as CEO, to efficiently handle the growing popularity, and sustain eBay’s success.
Meg earned a MBA at Harvard Business School, and had gained high acclaims and top-shelf
experience at the successful company of Hasbro.
With the addition of Meg Whitman’s expert experience eBay soon expanded rapidly to
service a wide variety of buyers and sellers, and in September of 1998 the company went public.
The shares were initially offered at $18 and immediately rose to $47 by the end of the day. The
company has not faltered since, rising to revenues exceeding $700 million by 2001.
In its short history, eBay has chosen several different paths than traditional companies to
get to where it is. Most all of eBay’s advertisement was done through word of mouth and
through agreements with a few Internet companies such as AOL and Disney. The large portion
of savings from low advertising costs is invested in innovative marketing strategies to keep them
ahead of its competitors.
I believe that eBay is has achieved such an incredible amount of success in such a
relatively short period of time because of its beginning philosophy of giving power to its users.
With that foundation of loyal users it is able to expand its name by word of mouth and continue
to grow to service a wider variety of users and their products. Also eBay’s ability of provide
6Financial Analysis of eBay
access to such a broad variety of products at relatively low prices will continue to attract more
users and profits in the future.
eBay is a remarkably efficient market created by connecting individuals who wouldn't
otherwise be connected. It was the world's first example of online social networking. While
skeptics questioned whether people would trust doing business with strangers online, Pierre
firmly believed that people are basically good, and that any issues would work themselves out by
the community.
Since its creation, eBay has grown to have a presence in 39 markets (including
partnerships and investments) with more than 90 million eBay.com users worldwide, trading
more than $1,900 worth of goods each second. In 2002, the eBay community made it clear that
they preferred using PayPal as an online payment method. So eBay acquired PayPal, which
brought new efficiencies to e-commerce and redefined possibilities for eBay's future.
The company has since expanded by acquiring innovative businesses, such as
Shopping.com, StubHub, Bill Me Later and others, which have positioned the company as the
global leader in e-commerce and payments.Building on Pierre's entrepreneurial legacy, eBay
continues to passionately believe in the potential of technology to connect people around the
world.
7Financial Analysis of eBay
CompetitionSince participating in the auction industry requires only a web presence, at first sight the
threat of competition looms heavily over eBay. In fact, two online heavyweights have entered the
market, Yahoo and Amazon.
These competitors have not only longer operating histories, but larger customer base and
greater brand recognition. So why does eBay currently control more than 80% of the online
auction market, with Yahoo and Amazon lagging far behind?
In my opinion, the answer lies in a combination of penny pinching and first mover
advantage. eBay utilized their first mover advantage admirably, quickly and constantly building
a community of buyers and sellers. The best way to compare eBay to its competitors is through a
SWOT analysis.
Strengths Weaknesses
Brand Name Economies of ScaleInternet SalesOpen Seller PlatformLow-Cost ProviderPaypalMarket LeadingLow Debt
Non-Business Related Acquisitions Moving away from auctions being the primary business Mature Market
Opportunities ThreatsInternational ExpansionNetBook ComputersDepartment Store Failures
Amazon.com E-commerce Tax LitigationEconomy
8Financial Analysis of eBay
Strengths
Brand name - Strong brand name helps to increase margins by charging premium prices for
goods, because customers perceive a higher standard of quality from companies with strong
brands. The strong brand name eBay has obtained has increased the number of customers they
draw into their business because of the common name they have throughout consumers.
Economies of scale - eBay has economies due to its large supply of buyers and sellers. Having a
large number of active users as they do, they are able to protect themselves from new entrants to
the industry. This retains their market share and provides them with a strong foundation for
successful business.
Internet Sales – Internet sales are increasing at a fast pace. This has come to benefit eBay and the
industry as a whole because of the recent advancement to using technological based systems to
run the businesses. The continued growth of the internet and also its expected growth into the
future greatly support eBay’s business and success.
Open Seller Platform - The ability to allow businesses to sell their products on a website
enhances liquidity for such products, gives better options to users and allows the platform
provider to increase the number of goods they have for sale, which increases their revenue and
margins. When buyers can get new or used products from one place, the customer relationships
between the buy and the preferred platform will increase.
Low-Cost Product – Low cost provides significant barriers to entry if that company is the only
low cost product among many other higher cost products. Also, companies that save businesses
money will also benefit when businesses have to cut cost over time, either through greater
9Financial Analysis of eBay
efficiency or cheaper goods. eBay is able to have low costs in an industry which requires
somewhat of a technological investment, which allows it to have high margins.
Paypal/Non-Cash Society - The growing use of credit cards and debit cards are increasing the
trend towards a cash-less society. Card companies and those that process card transactions
should benefit from the shift away from using cash. The growing use of these forms of payment
will allow Paypal to generate substantial growth to the eBay company.
Market Leading - Market leading position brings many benefits to those companies. Generally,
they possess good brand names, economies of scale, higher margins, revenues and other
significant benefits, such as the ability to raise debt at lower cost. They generally have a more
stable business than their competitors and are more likely to acquire other businesses as
opportunities come about.
Low Debt – Without long term liabilities facing the company, eBay is able to avoid constant
interest payments which cut into cash flows each period. This lowers the risk of the company
because without debt taken out, there is no default risk of the company. Free cash flows can then
be used to finance growth of the company and on innovation, rather than making payments to
bondholders.
Weaknesses
Non-Business Related Acquisitions - The acquisition of Skype did not add value for eBay's
customers. Non-essential acquisition can distract a company and dilute the management
expertise and financial results. It would be a significant weakness for eBay to continue making
non-essential acquisitions.
10Financial Analysis of eBay
Moving away from auctions being the primary business – Through various business related
moves, eBay has faced weaknesses in their company distracting their focus away from their core
business of auctions. This has placed management in a situation to run the eBay company with a
strategy different then what had been put in place in the past and also what has been successful
for them. The last part of the weakness which affects the company is getting outside the range of
management’s expertise.
Mature Market - Mature markets result in slower growth of revenue and lower margins as
companies begin to compete on price and service versus the past driver of value, growth.
Competitors usually have to differentiate themselves in the customer's eye to maintain value.
Some become lost cost suppliers, high quality suppliers of products, or niche suppliers of
services. If companies are able to create a natural monopoly (economies of scale, buyer power,
etc.) then mature markets can turn into cash cows, where the main company needs very little
investment to produce very large amounts of free cash flow. eBay must handle their situation as
a mature company by introducing new strategies to enhance their business.
Opportunities
International Expansion – Because of the increasing growth in buyers globally, there are many
opportunities in globalization for growth. The type of business eBay is in has the potential to be
successful in other markets if they can fix some of the problems with their services that other
locations expected.
NetBook Computers - Low cost notebook computers are gaining in popularity. They run on the
Linux platform, which undermines Microsoft’s Windows operating software system.
11Financial Analysis of eBay
Department Store Failures - Slowdown in department store's popularity may cause long-term
growth problems. This also affects all merchandisers who want to sell their clothing through
department stores.
Threats
Amazon.com - Increased competition is a threat to EBay’s business, but Amazon.com provides
an acute threat to eBay, through their advancement into used goods and auction style online
commerce.
E-commerce Tax - Potential tax on e-commerce transactions will decrease the demand for goods
online. This will affect the prices of services which need to be charged in order to make up for
the increase in costs for the company, suppliers and buyers.
Litigation - Litigation risk might not be priced into the beta. The potential of litigation risk
increases the uncertainty for companies, which lowers the value of a company. Until the risk is
gone, a company tends to trade based on any news concerning the litigation potential.
Economy - A global slowdown or recession will hurt all companies, but mostly those whose
products sell in economies that experience the worst declines. Commodity prices will also
decline, because economies slow down and the current resource supply is static; therefore,
oversupply ensues. A global slowdown also affects advertising/service companies, which are
typically very cyclical industries.
Rivalry in the e-commerce sector has always been an area of competition since its boom
began in the late 1990’s and will continue as the increase in internet usage continues on. The e-
commerce industry is expected to see double digit growth rates over the next five years (Shopall,
12Financial Analysis of eBay
2008), and this increase will continue to attract more and more businesses hoping to take
advantage of the profits. This intense rivalry which has been seen and will continue to be seen by
eBay and its competitors means it is necessary to determine exactly what the customers want and
what should be done to win the market share.
The risk of entry by potential competitors is relatively high due to low barriers to entry.
New competitors can launch new sites at a nominal cost using commercially available software.
This low barrier to entry will cause competition to intensify in the future. Also due to the broad
range of products sold at eBay there are many more opportunities for new competitors to enter in
more specific market segments.
The degree of rivalry among established companies within eBay’s industry is very high.
This high degree of rivalry is very common in discount retail industry due to the high
concentration on being the price leader. EBay’s competition is very broad and varies with each
of its different products. eBay competes closely with many well know broad-based companies
such as traditional department and general merchandise stores, as well as a large variety of online
retailers. Due to this complex competitive industry, eBay must concentrate on many competitive
factors such as: ability to attract buyers, volume of transactions and selection of goods, customer
service, system reliability, brand recognition, and many others to keep their edge.
The bargaining power of buyers is low because the seller sets the prices of the products
and because a majority of the sales are in an auction platform. This gives eBay and the buyer less
control of the products prices, but in most cases the large amount of sellers per product keeps the
prices low and competitive. The buyers benefit from the competition of the sellers, convenience
of a trade environment, and not on the power of price bargaining.
13Financial Analysis of eBay
The bargaining power of suppliers is relatively high because eBay must keep its fees and
commissions low in order to attract and keep loyal sellers. Sellers are the suppliers of the
products and are able to pick from different auction companies and select one offering the lowest
fees and commissions. The ability for the suppliers to select the company offering lower selling
costs and higher profits per sale, forces eBay to remain competitive in selling costs. With the
power more in the supplier’s hands eBay is required to satisfy their needs with higher customer
service, more convenient selling platform, and lower selling costs in order to keep a large
supplier base and attract new sellers.
The threat of substitution is high due to the growing number of online auction and
shopping sites. Online retail is a highly volatile and rapidly growing industry where substitutes
and rivaling competitors can emerge with relatively minimal costs and in a short amount of time.
This high degree of threat forces eBay to continuously use its strong finances to maximize user
satisfaction and to acquire high quality auction properties in order to remain dominant in its
industry.
After analyzing the forces of this industry I believe that the competition is very intense.
In order to succeed in this industry a company must continuously improve all of its aspects of
business. If the company becomes content or satisfied with its success it will be quickly
surpassed or replaced by another competitor. This industry is extremely volatile and it is
imperative to invest in improving your company in order to remain competitive.
14Financial Analysis of eBay
Financial AnalysisOverview
eBay is an online company that provides online marketplaces for the sale of goods and
services. It also provides commerce, platforms, online payments services and online
communications offerings to individuals and businesses. The company primarily operates in the
US. It is headquartered in San Jose, California and employs 15,500 people.
Annual Financials for eBay Inc.
All amounts in millions except per share amounts.12/2010(TTM)
12/2009(TTM)
12/2008(TTM)
12/2007(TTM)
Operating Revenue 9,156.27 8,727.36 8,541.26 7,672.33
Total Revenue 9,156.27 8,727.36 8,541.26 7,672.33Adjustment to Revenue 0.00 0.00 0.00 0.00
Cost of Sales 1,991.93 1,931.50 1,743.17 1,365.37Cost of Sales with Depreciation 2,564.67 2,479.76 2,228.07 1,762.97Gross Margin 7,164.35 6,795.86 6,798.09 6,306.96
Gross Operating Profit 7,164.35 6,795.86 6,798.09 6,306.96
R&D 908.43 803.07 725.60 619.73SG&A 3,418.44 3,686.89 3,227.88 3,081.41Advertising 0.00 0.00 0.00 0.00
Operating Profit 2,053.57 1,456.77 2,075.68 613.18Operating Profit before Depreciation (EBITDA) 2,837.47 2,305.90 2,844.62 2,605.83
Depreciation 762.47 810.95 719.81 601.71Depreciation Unreconciled 0.00 0.00 0.00 0.00Amortization 0.00 0.00 0.00 0.00Amortization of Intangibles 189.73 262.69 234.92 204.10
Operating Income After Depreciation 2,075.01 1,494.95 2,124.80 2,004.12Interest Income 44.88 1,422.39 107.88 154.27Earnings from Equity Interest 0.00 0.00 0.00 0.00Other Income, Net 0.00 0.00 0.00 0.00
Income Acquired in Process R&D 0.00 0.00 0.00 0.00Interest Restructuring and M&A -21.44 -38.19 -49.12 0.00Other Special Charges 0.00 0.00 0.00 -1,390.94
Total Income Avail for Interest Expense (EBIT) 2,098.45 2,879.15 2,183.56 767.45Interest Expense 0.00 0.00 0.00 16.60
15Financial Analysis of eBay
Income Before Tax (EBT) 2,098.45 2,879.15 2,183.56 750.85
Income Taxes 297.49 490.05 404.09 402.60Minority Interest 0.00 0.00 0.00 0.00Preferred Securities of Subsidiary Trust 0.00 0.00 0.00 0.00
Net Income from Continuing Operations 1,800.96 2,389.10 1,779.47 348.25Net Income from Discontinued Ops. 0.00 0.00 0.00 0.00Net Income from Total Operations 1,800.96 2,389.10 1,779.47 348.25
Extraordinary Income/Losses 0.00 0.00 0.00 0.00Income from Cum. Effect of Acct Chg 0.00 0.00 0.00 0.00Income from Tax Loss Carry forward 0.00 0.00 0.00 0.00Other Gains (Losses) 0.00 0.00 0.00 0.00
Total Net Income 1,800.96 2,389.10 1,779.47 348.25
Normalized Income 1,822.40 2,427.28 1,828.59 1,739.19Net Income Available for Common 1,800.96 2,389.10 1,779.47 348.25Preferred Dividends 0.00 0.00 0.00 0.00Excise Taxes 0.00 0.00 0.00 0.00
Per Share Data
Basic EPS from Continuing Ops. 1.38 1.85 1.37 0.26Basic EPS from Discontinued Ops. 0.00 0.00 0.00 0.00Basic EPS from Total Operations 1.38 1.85 1.37 0.26Basic EPS from Extraordinary Inc. 0.00 0.00 0.00 0.00Basic EPS from Cum Effect of Accounting Chg 0.00 0.00 0.00 0.00Basic EPS from Other Gains (Losses) 0.00 0.00 0.00 0.00Basic EPS Total 1.38 1.85 1.37 0.26Basic Normalized Net Income/Share 1.40 1.88 1.41 1.30
Diluted EPS from Continuing Ops. 1.36 1.83 1.36 0.25Diluted EPS from Discontinued Ops. 0.00 0.00 0.00 0.00Diluted EPS from Total Operations 1.36 1.83 1.36 0.25Diluted EPS from Extraordinary Inc. 0.00 0.00 0.00 0.00Diluted EPS from Cum Effect of Accounting Chg 0.00 0.00 0.00 0.00Diluted EPS from Other Gains (Losses) 0.00 0.00 0.00 0.00Diluted EPS Total 1.36 1.83 1.36 0.25Diluted Normalized Net Income/Share 1.38 1.86 1.40 1.25
Dividends Paid per Share 0.00 0.00 0.00 0.00
Additional Data
Basic Weighted Shares Outstanding 1,305.59 1,289.85 1,303.45 1,358.80
16Financial Analysis of eBay
Diluted Weighted Shares Outstanding 1,327.42 1,304.98 1,312.61 1,376.17
The company recorded revenues of $7,672.3 million during the financial year ended
December 2007 (FY07), an increase of 28.5% over FY06. The operating profit of the company
was $613.2 million during FY2007, a decrease of 56.9% compared to FY06. The net profit was
$348.3 million in FY07, a decrease of 69.1% over FY06.
eBay currently has set itself into a position of strong financial success and growth in the
key areas of its business. Sales have increased due to the strengths of past acquisitions and low
costs have returned high profits back into free cash flow. Cash is being held and used to advance
success in fast-growing businesses in order to receive quick returns for stockholders. Cash is
currently listed at $3.8 billion and with borrowing power increase by $1B to about $2B; they are
in a strong position to continue their advancement in key acquisitions. Another strong financial
factor to consider for eBay is that it has permitted leverage of 3x EBITDA, up from their past
permitted leverage of 2x, allowing for the use of more debt in their cost of capital structure. The
stock market seeing eBay as a strong company has been important when they are adding capital
and their current market capitalization is $15.70B. Through the use of this capital being raised
through the sale of its own stock eBay has built two strong forces to finance their growth, debt
and equity.
This chart provides financial ratios for eBay from 2005-2008. All data used is year end,
and with such we can determine how eBay has done over time.
Comparison of Competition, 2005-2008 2005 2006 2007 2008
Profitability
17Financial Analysis of eBay
ROA 10.96% 8.9% 2.41% 11.11%
ROE 12.77% 10.74% 3.08% 14.92%
Operating Profit Margin 31.7% 23.8% 8% 23.25%
Net Profit Margin 23.8% 18.86% 4.54% 20.04%
Liquidity
Current Ratio 2.144 1.97 2.3 1.7
Quick Ratio 1.80 1.59 1.87 1.6
Leverage
Debt/Assets 0.139 - - .064
Debt/Equity 0 0 0 0
Interest Coverage 272.7
Activity
Fixed Asset Turnover 6.0 6.6 7.2 7.4
Receivables Turnover 16.153 16.7 17.6 18.7
Total Asset Turnover 0.460 .47 .53 .55
Days Sales 22.6 21.9 20.8 19.6
Shareholder's Return
P/E Ratio - - - 12.80
Dividend Payout Ratio 0 0 0 0
The ROE for 2008 is currently outperforming all time periods going back to 2005. This is
an impressive feat given the current economic situation and displays eBay’s goal of working for
its shareholders. This will be beneficial for the company, as the market will see it as an owner
focused company and should stimulate more investor interest. The other area of success for the
company financially is its liquidity ratios. By holding low amounts of debt and liabilities, these
statistics look very good for the health of the company. These ratios have stayed consistent over
time, proven the financial strength of eBay.
18Financial Analysis of eBay
Although there are strong financials to show for this company, there are also areas which
show faults and need improvements. To start, operating profit margin has decreased on average
since 2005. This shows a decrease in net profit relative to the amount spent on operating
expenses. This will need to be improved in order for the company to be as successful as it should
be financially. The other area of concern deals with the financial ratios for days sales. This
number has decreased by 15% since 2005 and this is a result of less sales happening on a daily
basis for the company. Slowed sales come to equal less efficient performance for the company
and also a need for a growth strategy to be implemented.
Economic Forecast for 2011
The year 2011 is expected to bring a turnaround in both the economy as a whole and also
in this industry. This period will be the end of an economic recession, as the current market will
come to a trough. This leads us to believe in the economy and eBay will need to weather more of
a downturn before becoming successful in the near future during expansion.
Economic Forecast to 2014
By the year 2014, the United States will be in the midst of economic expansion and this
will be the opportunity for eBay to see large successes in financial performance. eBay is
expected to grow at a rate of 31.59% in revenues over the next five years. Following this high
growth period, analysis on eBay’s financial forecast was completed using a conservative 6.7%
for their stable period of revenue growth.
Recession Resistant Retailer
19Financial Analysis of eBay
This firm saw its quarterly revenue in 2008 growth bounce by 19.7% (year-over-year),
while quarterly earnings growth jumped 22.5%. Its users sold $927 million in goods during the
second quarter, which dumped $35.7 million into the company’s funds in transaction fees. These
are positive results, given the weak state of the current economy and inflation forcing consumers
to cut back on purchases. eBay is able to see successes during this time period because of the
type of products they offer and being an e-commerce based company has aided in their success
in our heavily internet focused society.
Payment Services Business to Diversify
The other area which has allowed eBay to stay stable during times of turmoil is having
Paypal in its company portfolio. Having these two companies working together, diversity is
created between the two and this limits the risk of the eBay company being the only member of
the portfolio. The reason Paypal has been successful for this company is its relevance to the
business which is occurring and also its flexibility to expand into other companies.
Present Value of Economic Value Added
Using the FCFFEVA model coded by Damodaran, we can first determine the present
value of the economic value added by the company of eBay. In order to complete this model we
have used the financial results from the year end 2008 financial statements and also calculated
forecast, for both the growth period and stable growth period for the company. The main
assumptions taken for this model were that of eBay choosing to take on some debt during the
stable period in order to lower their cost of capital in the company. The other decisions made
were that of remaining conservative in the near future regarding financials and also for the
future, as these items are difficult to predict with certainty. This returns results of
20Financial Analysis of eBay
$39,184,331,993. This amount of money is the value eBay has added to the economy through its
growing earnings forecasts.
Present Value of the Firm
Value of firm has been calculated using the free cash flow method and this equates that
the eBay company is worth $47.05B. In the market eBay is currently reporting company value of
$23.17B. As can be clearly seen, the valued company worth is much more than the company has
been valued in the market. Lastly, we have calculated the valuation of the share price. The free
cash flow method has returned a value share price of $35.98, while the current share price is
$17.23. Using these numbers we can determine that eBay is currently much undervalued and this
represents that investors have other beliefs about the current situation of the company. It seems
as though there could be worries about eBay’s current situation as a company which has not
obtained investor trust in the company. This, along with the current economy placing many
stocks in a value position, has placed this stock price in an undervalued position.
FIRM VALUATION
Value of Firm $ 47,052,148,638
- Value of Debt $ 1,000,000,000
Value of Equity $ 46,052,148,638
Value of Equity per Share $ 35.98
PV of EVA $ 39,184,331,993
+ Capital Invested $ 10,587,300,000
21Financial Analysis of eBay
+ PV of Chg Capital in Yr 10 $ (2,719,483,355)
= Firm Value $ 47,052,148,638Value of Firm by year
2009 2010 2011 2012 2013
$ 47,052,148,638
$ 53,044,205,188
$ 59,454,140,700
$ 66,168,727,693
$ 72,998,197,277
2014 2015 2016 2017 2018
$79,645,280,835 $86,112,845,792 $92,321,162,784 $98,367,906,906 $104,589,358,409
22Financial Analysis of eBay
Recent Company NewseBay has recently announced that it has agreed to acquire Magento Inc., the creator of
Magento, a leading open source ecommerce platform. The deal follows eBay’s acquisition of a
minority stake in the company in 2010. Upon closing of the transaction, eBay will own 100
percent of the outstanding shares of Magento.
The Magento platform serves tens of thousands of merchants worldwide and is supported
by a global community of solution partners and third-party developers. Magento is a feature-rich,
open-source, enterprise-class commerce solution that offers merchants a high degree of
flexibility and control over the user experience, catalog, content and functionality of their online
store. Magento Go, the company’s hosted software-as-a-service solution, provides small and
growing merchants with the tools to help them succeed online – from payments to inventory
management. Magento is a Los Angeles-based company with more than 290 employees.
X.Commerce, eBay’s newly created integrated open commerce platform group, is
focused on leveraging the company’s assets and partner technologies to build a strong, robust
developer community as a resource for merchants and retailers of all sizes.
eBay does not expect the acquisition of Magento to have a material impact on its
financial guidance as issued in conjunction with its first quarter earnings release on April 27,
2011.
23Financial Analysis of eBay
ConclusioneBay had taken off as an early leader in e-commerce in the late 1990s with an auction
model that guaranteed consumers could find the best price on many used and leftover items. I
would recommend a couple of different strategies for eBay to move forward in the future. The
first strategy leads the company for the impending changes by focusing back on auction business
rather than secondary-market Second; eBay will be able to cover up the transformative costs by
selling Skype. Skype is not directly related to the auction business. To ensure future long term
growth of eBay, the company would have to enter the Chinese auction market. China will
overtake America with the largest number of Web surfers as early as 2011. After two or three
years of change, eBay will be positioned in Global markets. Moreover, eBay will continue to
grow, and providing a consistent stream of profit that will reinforce eBay’s long term position as
market leader.
I believe that eBay has the resources and competencies to strive for its overall generic
strategy. If eBay continues to utilize its resources and capitalize on its competitive advantage
then it should continue to achieve success in the future. eBay’s generic strategy is very broad
which I think is important because they compete in many different markets. Constantly striving
for their overall strategy, as well as, improving and expanding their core competencies will help
eBay to remain ahead of its competition.
eBay is involved in many different markets such as business-to-business, specific
categories of goods, broad-based goods, and other online auction sites. This wide variety of
markets makes it difficult to dominate each one, but eBay is the leading online auction site. eBay
24Financial Analysis of eBay
is also near the top in competition in all of its other markets. As eBay continues to expand its
user base and product selection, it will continue to strengthen its competitive advantage. eBay is
involved in many volatile markets prominently based on price leading and product selection, and
it must strive to constantly improve all of its aspects of business in order to remain competitive.
25Financial Analysis of eBay
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26Financial Analysis of eBay
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27Financial Analysis of eBay