Should eBay Buy Overstock?

After a boardroom battle in which one side wanted eBay to get back to its roots, the company was rewarded Monday (July 20) by word that it’s close to selling its classified ad business to Norway’s Adevinta for $9 billion. What should eBay do next as a company once the sale closes?

First, eBay will continue to maintain a minority stake in the classified ad business, according to several reports. The unit offers online ads in more than 1,000 cities around the world and posted $83 million of income on $248 million in revenues during the first quarter.

However, activist investors Elliott Management and Starboard Value had been pushing eBay to sell the unit, as well as StubHub, since last January as part of a plan that would return the company to its marketplace roots.

This “return to its roots” movement should cancel out any investments in alternative FinTech companies or new business opportunities. But some other interesting scenarios could play out.

After all, eBay already had $4.3 billion in cash as of March 31. Add in $9 billion from the Adevinta deal and that will give eBay about $13.3 billion in cash on hand — a substantial war chest if it wants to make some acquisitions.

What might eBay buy?

Etsy

The company most often mentioned in terms of a possible acquisition for eBay is Etsy.

However, that deal doesn’t look realistic given Etsy’s recent pandemic-fueled growth and its market cap of around $40 billion (some $27 billion more than eBay’s likely cash pile). A bid for Etsy at this point would also be trying to acquire it at its highest point in terms of stock price and positive momentum.

Overstock

If Etsy is out of reach, the other logical high-profile target on the market would be Overstock.

That company has also done well during the pandemic, but has just a $2.16 billion market cap. That puts eBay in a position to bid for Overstock it wants to.

Mercari, eBid or Bonanza

eBay could also buy one of its privately held competitors like Mercari, which claims 45 million downloads of its app and is more mobile-focused than eBay. That could give the firm a better handle on the mobile commerce shift.

Another option is eBid, a U.K. company that’s intriguing because it has its own payment service called PPPay. Its value proposition is aimed at sellers, charging no fee to set up shop.

And another viable alternative for eBay is a company called Bonanza. That firm claims to have 50,000 sellers and says it’s “more profitable than Etsy.” Bragging rights aside, Bonanza consistently wins awards for its management and culture. Bonanza might also be attractive as a takeover target because of its squeaky-clean reputation, in light of a recent scandal in which former eBay executives were allegedly involved in a stalking campaign.

A Hot Time For eCommerce

One thing’s for sure — the pandemic has placed eCommerce companies in the driver’s seat on Wall Street and Main Street.

It’s interesting that three major players had their price targets raised on the same day that news broke of a likely eBay/Adevinta deal. Amazon’s price target was raised to $3,800 from $3,100, while eBay’s price target was raised to $58 from $52 and Etsy was increased to $125 from $110.

“Our analysis points to continued elevated top-line growth for e-commerce through June and into July, supporting our view that behavioral changes brought about by the pandemic has permanently increased online consumption,” Jefferies analyst Brent Thill told The Street.

Jefferies is most bullish on Amazon and Etsy, as those two companies “are best positioned to benefit over the long-term from behavioral changes resulting from the pandemic.”

And in a separate note, Goldman Sachs raised eBay’s price target from $49 to $56.

“We expect more medium- and long-term outperformance to come from those companies with models that will benefit beyond the immediate crisis in the form of accelerated network effects, weakened competitive sets, and scale benefits to profitability,” Goldman analyst Heath Terry wrote.