GSI Commerce Acquisition Could Add 10% to eBay Stock Value
eBay (NASDAQ:EBAY), which competes with other e-commerce sites like Amazon (NASDAQ:AMZN), Wal-Mart (NYSE:WMT), Overstock (NASDAQ:OSTK), and Blue Nile (NASDAQ:NILE), recently decided to acquire GSI Commerce for $2.4 billion. We believe that this acquisition will make eBay’s marketplace more attractive for merchants of all sizes and add significant value to the company’s stock.
We have a price estimate of $32.81 for eBay stock, implying a roughly 5% premium to market price.
Possible Synergies for eBay
This acquisition will allow eBay to compete more effectively with online retailers such as Amazon by enabling more merchants of all sizes to conduct e-commerce. The new platform will attract buyers who prefer the simplicity of buying at fixed prices and merchants who prefer selling at fixed prices. GSI Commerce will bring order-management, fulfillment, and shipping business to eBay (including packing up orders for shipment). The deal will also put eBay in better position to help merchants of all sizes to better leverage mobile and social commerce for growth.
eBay and GSI aim to move towards a common platform after 2011 to serve retailers of all sizes across eBay, Paypal and GSI. eBay anticipates that the acquisition could add to its bottom-line from 2012 onwards, even though it may put negative pressure on operating profits in the near-term.
10% Upside to Our $32.81 Value Estimate for eBay Stock
Here we consider the scenario where GSI lifts the number of merchandise listings on eBay’s marketplace by an additional 2% beyond our base case forecast (base case depicted in modifiable chart above).
Given a 2% increase in listings beyond our base case, it is also reasonable to assume that this scenario would produce a 1% increase in EBITDA margin beyond our base projections (annually) for eBay marketplaces. This would push EBITDA margin back up towards 2007 levels by the end of our forecast period.
This scenario (higher listings and EBITDA margin), combined with the appropriate $2.4 billion deduction in eBay’s cash balance, would suggest 10% upside to our base case price esitmate of $32.81 for eBay stock, putting our number near $36. You can test this scenario, and others, by dragging the trend lines in the interactive charts featured here.
About GSI Commerce
GSI Commerce provides products and services to over 2,000 brands globally, including Toys ‘R’ Us®, the National Football League®, Aeropostale®, Polo Ralph Lauren®, Dick’s Sporting Goods®, Dell® and Estee Lauder® through its 3 business segments – Global e-Commerce Services, Global Marketing Services and Consumer Engagement. While the company operates on a global basis, the vast majority of its revenues are derived from its North American operations.
In 2010, GSI Commerce had net revenues of nearly $1.4 billion, in which product sales contributed $777 million and service fees contributed $581 million. The company’s reported net loss was $36.5 million.