June 2, 2005

eBay said yesterday it is acquiring Shopping.com, an online-comparison shopping site for $620 million in cash.

The online marketplace will pay $21 a share of Shopping.com's shares, or a 20% premium, both companies announced.

Shares of eBay fell 2.5% to $38.11 in after-hours action. The stock rose nearly 3% to $39.11 in regular trading.

Shopping.com surged 19% to $20 in late trading to $20.80, after closing 2% higher at $17.44 during the day. The company is expected to earn $131 million in 2005 and earn 70 cents per share. Based on those forecasts, eBay is paying 4.7 times this year's sales and 30 times earnings.

Executives at both companies declined to discuss the deal value, but did say both companies are complementary, with business models focused on bringing buyers and sellers together and receiving a brokering fee from the transaction. They said there would be no layoffs.

'We really like the essence of Shopping.com,' said Bill Cobb, president of eBay North America, who told MarketWatch that eBay approached Shopping.com a few weeks ago. 'Shopping.com focuses on bringing buyers and sellers together.'

Additionally, Shopping.com brings a large audience to eBay sellers, who have showed their ire in the last few months after eBay raised prices.

'We thought this would be something that would be excellent for our community of sellers,' said Cobb. 'This will give them access to a new set of buyers.'

EBay sellers would be in front of Shopping.com's growing audience base. Shopping.com had 22.6 million unique visitors in April, up 15% from last year.

Asked if eBay sellers would see their product listings prominently placed on Shopping.com's site, Cobb said it was still too early to tell how the companies would integrate.

EBay has a 'tremendous community of buyers,' said Lorrie Norrington, president and CEO of Shopping.com. EBay saw 63.8 million unique visitors to its site in April, up 6% from last year, according to comScore Networks.

'The eBay/Shop combo can be great for buyers,' said Scot Wingo, of ChannelAdvisor, which helps sellers liquidate merchandise across eBay, Amazon.com and search engines. 'If the integration is well thought out and seamless, buyers will be able to find in-season products and end-of-life products in one marketplace.'

The deal is expected to close in the third quarter. EBay said the acquisition is expected to be immaterial to its full-year 2005 pro-forma diluted earnings, but may affect earnings on a GAAP basis. The dilution is due to incremental charges based on stock-based compensation and acquired intangible assets.

Both executives would not elaborate on when Shopping.com would boost eBay's earnings.

One banker believes the effect will be immediate. 'The deal is immediately accretive to eBay because the transaction price as a multiple of revenue is well below eBay's price-to-revenue multiple,' said Ken Marlin, investment banker at Marlin & Associates.

The acquisition comes as both companies' shares are struggling, down sharply this year.

EBay's shares are down 33% to $39 from $58.17 at the start of the year. They traded at a low of $30 in late April. Shopping.com had fallen to $12.46 from $28.25 at the start of the year.

EBay's market cap trumped that of Google at the start of the year. Today, it stands at roughly $30 billion shy of the search engine, which is three years younger.

That switch occurred this year after eBay said its profits would be weaker than Wall Street expected, partly due to higher online marketing costs, and a slowdown in revenue in its U.S. marketplace. The slowdown was due to sellers increasingly looking at alternatives, such as Overstock or on other search engines, like Google and Yahoo.

In late April, Shopping.com shares took a steep dive after the comparison-shopping site reported first-quarter results and a second-quarter outlook that implied declining margins. Shopping.com also saw a rise in marketing costs, such as keyword prices.

It's unclear where the two companies will save on marketing costs by joining forces. According to Cobb, the deal was not about saving marketing costs.

Both executives say they believe their marketplaces combined will keep sellers and buyers active on both sites. At least that's the goal.

Asked whether how the deal affects Shopping.com's relationship with Google, Norrington said it wouldn't. Shopping.com will remain a distribution partner of Google's, she said. Shopping.com receives a significant amount of its sales from Google.

Source: Forbes

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