Rumors and news about eBay are popping onto the business newswire these days. Whatever they’re sizzling in their pan, it smells and looks like a new recipe. For a corporation with two excellent, high margin, wide moat businesses—auctions and Paypal—shareholders would welcome and do deserve a “dish” with better capital allocation in the years ahead.
So what’s the news? For one, Skype’s founders want to buy their creation back, though eBay denies that they’re close to a deal. Also, today, StumbleUpon’s founders disclosed that they had brought their baby back home, which they had sold to eBay for $75 million two years ago. And lastly, eBay appears close to purchasing a 34% stake in Korean online auction operator Gmarket.
One discerns the trend in these moves—increased concentration on auctions, retailing, and payment processing, and a decreased interest in Web 2.0 and 3.0 technologies. Originally eBay had expected more synergies with Skype, using VOIP as a new delivery channel for its auction and retailing site. But at their recent analyst day, eBay’s management acknowledged that such plans were unsuccessful. Going forward, eBay said it was content to cultivate and grow Skype into a great standalone business; of course, it now appears that they could be tempted to part, for the right price.
All this movement should make investment bankers salivate. Though we don’t yet know the final sale price for StumbleUpon, it is unlikely that eBay commanded much more than its purchase price. For Skype, rumors place a likely sale price at $2 billion; this for the business that garnered $2.6 billion from eBay four years ago.
The waste of time, talent, and resources on these two acquisitions is paradigmatic of eBay’s capital allocation over recent years. Though some cash has gone to repurchasing shares, more went to overpriced acquisitions—acquisitions for which there was no natural home in their fragmented bureaucracy. In the months ahead, shareholders should hope that this new recipe bears little resemblance to the old.
Disclosure: I, or persons whose accounts I manage, own shares of eBay at the time of this writing.