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