EBay’s Repatriated Cash Opens Doors to Buy Square to Stripe
By Brian Womack and Brooke Sutherland May 01, 2014
EBay Inc. (EBAY:US)’s move to bring home part of its international cash hoard opens the door for it to do multibillion-dollar acquisitions, just as the company needs to rev up growth.
The world’s biggest online marketplace this week said it’s taking a $3 billion tax charge to potentially return $9 billion in profits to the U.S. While the San Jose, California-based company is still deciding whether to actually bring back the cash, the money could be used for stock buybacks or acquisitions, executives said.
In particular, EBay could open its checkbook for nimble, faster-expanding startups to bolster its slowing sales growth. EBay this week projected revenue for the second quarter that fell short of some analysts’ estimates and the company is on pace to show no growth in 2014.
“It gives EBay some options,” said Scott Kessler, a New York-based equity analyst at S&P Capital IQ. “They’re dealing with a lot of competition in a lot of different respects.”
EBay has a mixed record on acquisitions. While its purchase of PayPal more than a decade ago has created one of the company’s biggest businesses, its 2005 acquisition of Internet telephony company Skype led to a writedown two years later.
Amanda Miller, a spokeswoman for EBay, declined to comment yesterday.
Throwing Darts?
Possible targets that EBay might use to boost its marketplace business include Etsy Inc., the service known for its homespun crafts, said Robert Peck, an analyst at SunTrust in New York, who rates EBay a buy. Etsy, founded in 2005, has been profitable since 2009.
“It’s an area where they’ve sort of ceded to Etsy -- the whole artisanal, crafty area, which is growing well,” Peck said.
Sara Cohen, a spokeswoman for Etsy, didn’t return a call for comment.
EBay may also seek to boost its PayPal payments business by going after startup Stripe Inc., which specializes in helping businesses with enabling payments via computers or mobile devices. The San Francisco-based company had a valuation of $1.75 billion earlier this year.
Kelly Sims, a spokeswoman for Stripe, declined to comment.
Square Potential
Another possibility is Square Inc., which provides hardware that turns smartphones into a device that accepts credit cards, as well as providing mobile-payments services for Starbucks Corp. and others. Square, led by Twitter Inc. chairman Jack Dorsey, was valued at about $5 billion earlier this year.
Given that PayPal is pushing into physical stores, Square “could help them gain traction a little quicker offline,” said Josh West, an analyst at Kornitzer Capital Management Inc. in Shawnee Mission, Kansas, in a phone interview. Kornitzer advises the Buffalo Funds, which oversee about $8 billion, including EBay shares.
Aaron Zamost, a spokesman for San Francisco-based Square, declined to comment.
Stephen Kahn, a Toronto-based fund manager at EBay shareholder Condor Asset Management Inc., said he would prefer the company make any acquisition to boost its payments business rather than its slower-growing marketplace unit.
“I think there’s huge opportunities, and PayPal is one of the companies that’s trying to be the leader there,” he said.
Pinterest Inc., the online scrapbooking service, could be an option as well, Peck said. Pinterest helps funnel people to outside websites looking to sell to online customers. Yet the San Francisco-based company is also expensive, with a valuation of $3.8 billion as of a fundraising last year.
Barry Schnitt, a spokesman for Pinterest, declined to comment.
No Rush
EBay said it ended the first quarter with a total of $11.9 billion in cash, equivalents and non-equity investments, including about $2.2 billion in the U.S.
“We haven’t committed to repatriate any of the cash, so we’ll make that decision as we go along,” Chief Executive Officer John Donahoe said in an interview this week. “It simply gives us greater financial flexibility.” Repatriating the cash also doesn't preclude EBay from raising debt, he said, as Apple Inc. did this week.
Kessler doesn't rule out a dividend either, especially as EBay's growth rates slow and it becomes a more mature company. “It would make sense at this stage of the company’s lifecycle and growth trajectory that they would consider” a dividend, he said.
To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Brooke Sutherland in New York at bsutherland7@bloomberg.net
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