EBay Expands with $415 Million Acquisition

The recent wave of mergers crashed into the e-commerce space today when auction giant eBay said it would acquire for US$415 million in cash and stock.

The purchase extends eBay’s already sprawling reach into the rental real estate industry. lists apartments and homes for rent, relying on a business model that allows free listings and only charges fees when leases are signed.

Privately held, which was founded in the fall of 2001, said it is profitable and would have 2004 revenues of around $40 million. EBay will acquire the company in exchange for $385 million worth of stock and $30 million in cash.

EBay North America President Bill Cobb said the site made a “great match for eBay.”

“Together we can strengthen both businesses and help consumers get the most out of real estate online,” he added.

EBay shares fell slightly on news of the deal, losing less than 1 percent to $115.

Growing, Growing, Gone

For eBay, the purchase is the second time this year it has moved to expand into an entirely different area.

The first came when it purchased a 25 percent stake in the legendary, which allows users to post a range of products and services — from apartments and furniture to jobs and event ticket — for sale in a non-auction format.

However, most of eBay’s recent acquisitions remain tightly focused on the international scene, where the company believes most of its growth will come in the next five years.

In September, it sank $325 million into South Korea-based Internet Auction Co., a deal that gave eBay the option of one day buying the entire company. It also launched improvements to the site of its Chinese subsidiary. It has made other, smaller buys in Germany and Scandinavia this year as well.

Taken together, the moves seem to highlight a strategy of finding both growth opportunities and additional sources of revenue and profit, Forrester Research analyst Carrie Johnson noted.

“They already have one of the most loyal customer bases on the Internet, along with Amazon,” Johnson said. “Anything else they can bring into the fold to enhance the customer experience and drive revenue from those existing customers is going to help the bottom line.”

Delving into non-traditional markets such as apartment listings also fits with eBay CEO Meg Whitman’s notion that the eBay platform can be used successfully to sell just about anything and dovetails with eBay’s decreasing reliance on auction-formatted sales. More and more of the items sold through eBay are being bought through buy-it-now or other non-auction options, Johnson noted.

Exaggerated Expectations?

Though most analysts are bullish on eBay’s longer-term growth prospects, some have begun to question whether its current valuations are justified. Prudential Securities analyst Mark Rowen noted that eBay shares have climbed nearly 80 percent since the start of 2004, and even though it is consistently profitable, the company’s stock trades at relatively high multiples compared to companies of similar size.

“Everything they’re doing to expand here in the U.S. and overseas puts them in very good shape for long-term growth,” Rowen said. However, he added that the share prices have little room to grow before becoming overvalued for current conditions.

EBay said the buy would have little impact on 2005 earnings. The deal still needs to be approved by’s shareholders and is expected to close sometime in the first quarter.

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