Investopedia: Is eBay Looking At GSI Commerce As Another PayPal?

Back in the day, eBay's (Nasdaq:EBAY) acquisition of PayPal was not exactly universally praised. Not only did eBay pay a steep price (about $1.5 billion), but there were questions about whether eBay was throwing good money after bad in the wake of the failure of the Billpoint acquisition, and whether this was an unneeded step away from eBay's core business of facilitating online auctions.

It is about nine years later now, and nobody seems to be second-guessing the deal. Rival operations from Citigroup (NYSE:C), Yahoo! (Nasdaq:YHOO) and Western Union (NYSE:WU) ultimately bowed out, and PayPal has more than held its own against Google (Nasdaq:GOOG). More to the point, PayPal contributed about one-quarter of eBay's $3 billion in gross profits in 2010 - not a bad return on that deal.

Looking to Recapture that Magic? 

eBay has almost certainly not forgotten how PayPal changed their business, and Monday's acquisition of GSI Commerce (Nasdaq:GSIC) would seem to be following in that same vein. eBay announced that it will acquire this e-commerce facilitator for $2.4 billion in cash - offering $29.25 per share to GSIC shareholders.

This deal represents a 51% premium to Friday's closing price and roughly 23-times trailing EBITDA. Looking at forward multiples, it appears as though eBay is paying about 13- to 14-times forward EBITDA, which is roughly in line for what Oracle (Nasdaq:ORCL) paid for Art Technology a little while ago. eBay will be divesting part of GSIC, though, as it has elected to sell the licensed sports merchandise business and most of the consumer engagement operations back to the CEO in the form of a new holding company.

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No Damming Digital River

Nothing irks value investors like an expensive stock that stays expensive and more or less delivers the performance investors want. E-commerce specialist Digital River (Nasdaq: DRIV) is a good example. The stock has rarely been cheap, but the company continues to separate itself from would-be rivals and seems to have a way of bouncing back from setbacks. 

The Quarter That Was
Digital River announced that revenue fell 14% in the third quarter, due mostly to the loss of Symantec (Nasdaq:SYMC) as a customer. The company has done a great job of scrambling to replace that loss, though. Revenue excluding Symantec would have been up more than 20% over last year, due in part to the expansion of the company's relationship with other software companies like Microsoft (Nasdaq:MSFT) and Electronic Arts (Nasdaq:ERTS).

Profitability was a bit more problematic, however. The company made scant progress in trimming down expenses in sync with revenue, and Digital River saw total operating expenses fall only a bit more than $2 million. Consequently operating income fell precipitously, though the company's adjusted earnings were fine relative to Wall Street expectations.


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