Zacks analyst Ryan McQueeney explores the potential benefits and pitfalls of a hypothetical social media/marketplace mega merger.
Shares of online marketplace eBay (EBAY – Analyst Report) are down over 10% since the company reported its fiscal 2016 results after the closing bell Wednesday. Investors are reacting negatively to eBay’s sluggish holiday season guidance; however, some on the internet are pointing to the company’s new partnership with Facebook (FB – Analyst Report) as an encouraging sign for growth—or a potential buyout.
eBay posted third-quarter earnings of 45 cents per shares, which beat average analyst expectations by a penny. The company saw revenue figures of $2.22 billion, beating our consensus estimate of $2.182 billion and gaining 5.6% year-over-year.
Despite two beats, investors punished eBay for what was seen as relatively lackluster guidance. For the fourth quarter, eBay expects to see revenue of $2.36 billion to $2.41 billion and adjusted earnings of 52 to 54 cents per share. Wall Street analysts were previously calling for revenue of $2.40 billion and earnings of 54 cents per share (also read: eBay Reports Earnings Beat, Slumps 6.5% on Weak Holiday Guidance).
Perhaps the worst part about eBay’s weak fourth-quarter guidance is that, by all accounts, this year is gearing up to have a solid holiday shopping season.
Research from the National Retail Federation predicts that holiday sales, excluding autos, gas, and restaurant sales, will increase 3.6%, which is “significantly higher” than the 10-year average of 2.5% and above the seven-year post-recovery average of 3.4% (also read: 3 Reasons Why This Holiday Shopping Season Will Be Great).
New Relationship with Facebook
While eBay’s fourth-quarter guidance is unsettling, some investors are looking forward to the company’s new partnership with Facebook. The social media site has employed eBay to help it launch a shopping bot on its Messenger app.
Once dubbed “ShopBot,” the artificial intelligence technology is expected to drive sales to Facebook, which has been looking for ways to employ bots without overloading users. Facebook’s Messenger application has over one billion users, but the company currently does not have a way to monetize the transactions that take place on the platform.
A struggling eBay’s new-found friendship has, of course, sparked rumors and commentary on the web, with many suggesting that Facebook should go even further by buying out the online marketplace.
We do know that Facebook is gaining interest in e-commerce; the site just recently launched “Marketplace,” a sort-of Craigslist-eBay hybrid that allows users to buy and sell items from other users that are within the same geographical area (also read: Facebook Takes on E-Commerce with Marketplace).
If Facebook is willing to try out its own online shopping platform, is it too unrealistic to think that it might want to carve out a main competitor? Personally, I don’t think it is crazy at all, especially considering the fact that eBay is basically the original online re-selling platform.
Marketplace could keep its focus on local sales, and eBay could continue to allow shipping to anywhere. Listings could be cross-posted on both sites and, using Facebook’s plethora of user data, customers could be targeted with products that would interest them specifically.
At this point, any conversation about Facebook buying out eBay is simply an unfounded internet rumor. However, just because a rumor is unfounded doesn’t mean it’s inherently a bad idea. In my humble opinion, if the price is right, an eBay buyout could make sense for Facebook.
This article is brought to you courtesy of Zacks Research.