Facebook is in the business of making connections. They connect you with your old classmates, your favorite celebrities, and the companies you use the most. They can even connect you with a person who is willing to buy your unwanted items. In fact, on June 22, 2017 Facebook changed their mission statement to “Give people the power to build community and bring the world closer together.”
But Facebook isn’t the only company that helps people make connections. In 2016 alone, online companies connect sellers and buyers to the tune of $1.915 trillion. Three companies immediately come to mind when thinking about eCommerce – Amazon, Alibaba, and Walmart. These are the giants of online retail.
Facebook has a unique opportunity in expansion into eCommerce; they already have nearly two billion daily active users and the own the next two largest social networks (WhatsApp and Messenger). They have already attempted an entrance into the field through their popular Marketplace platform. However, expansion could be achieved much more rapidly by acquiring an established leader in the industry – eBay Inc. By gaining access to eBay’s Classifieds system and various other platforms, Facebook can soon enter the same conversation as the giants of the online retail world.
Marketplace and eBay Classifieds
Facebook launched Facebook Marketplace on October 3, 2016 in the United States, the United Kingdom, Australia, and New Zealand. Originally available only on mobile devices, Facebook users can now use Marketplace on their desktops or laptops. Marketplace is essentially a large classifieds system like Craigslist; anyone with a Facebook account in a participating country can post an item that they have for sale. Interested users them message the originally poster and they negotiate over price. Customers arrange who travels to pick up the item – the hosting company does not provide fulfillment or logistical support.
So if Facebook already has the ability to offer a classifieds service, why do they need eBay? eBay offers twelve classified brands in over fifteen countries across the world. One of their brands, GumTree, is the number one classifieds system in the U.K., Australia, Singapore and South Africa, while mobile.de is the top classifieds brand in Germany. All of these brands have a dedicated user base with a significant market share in their region. Adding these brands to their portfolio will allow Facebook to integrate these current platforms into their Marketplace system while immediately gaining new Marketplace users.
eBay.com and Other Websites
Despite their strength in the classifieds industry, eBay is predominantly known for their main website, eBay.com, which allows customers to bid in online auctions or purchase items immediately (Buy It Now). This platform currently has 1 billion live listings and 171 million active users. eBay.com is different than their classifieds segment since the transaction is completed using the eBay platform – rather than the two parties contacting each other to negotiate on a price, payment method, and a way to receive the item, the eBay system acts as an intermediary, providing sellers a reliable way to receive their proceeds and providing buyers a reliable way to receive their items.
So, how does acquiring the eBay website benefit Facebook? It takes their current Marketplace system and creates even more value for their customers while providing Facebook with a steady stream of revenue and allowing them to gather more data on their users spending patterns. In addition to getting eBay.com, Facebook would also have control of eBay’s other popular sites such as Shopping.com. Although eBay has a reputation for selling used or strange items, 81% of items that are listed on eBay are New. A customer’s eBay purchases can provide a lot of data to Facebook about the customer’s overall shopping patterns, not just what they buy when they are looking for something weird. And by using Facebook’s customer data, eBay will be better able to target their selection towards certain customers.
eBay also owns the “world’s largest marketplace for online ticket sales,” StubHub. Acquired in 2007, StubHub connects buyers and sellers of tickets to events ranging from World Series tickets to Hamilton on Broadway to a Bruno Mars concert. Simply put, StubHub sells tickets to events where people connect in real life.
Facebook could integrate StubHub with their Event pages – customers can let the world know they are going and buy tickets on the world’s largest secondary ticker market with just one stop. They will also have more data on their users – who actually goes to events they say they are going to, how much they are willing to spend on that event, etc.
Feasibility of Acquisition
Now, how likely is it that Facebook will make an offer for eBay?
The largest disclosed Facebook acquisition was their $19 billion 2015 purchase of WhatsApp. How does this compare to eBay? As of October 1, 2017, eBay has a market capitalization of just over $41 billion. Since eBay is a public company, Facebook would probably have to offer an acquisition premium on top of this price, likely bringing to total price somewhere north of $50 billion, easily making an acquisition of eBay their largest yet.
Can Facebook afford this price? According to their 2016 Annual Report, the company has about $29 billion in Cash and Marketable Securities. Additionally, Facebook currently has zero long-term debt, meaning the company has the capacity to raise debt capital if they need to. This acquisition is definitely possible for Facebook.
What about on eBay’s end? Due to their steady stream of cash flows and low correlation to political events, eBay is considered a potential target. Seeking Alpha believes that eBay is currently undervalued based on their predictability of cash flows and suggests that Alibaba is their most likely acquirer.
Altogether, the facts suggest that Facebook can indeed purchase eBay if they want to. Integrating eBay’s internet holdings will allow Facebook to take a huge step into the eCommerce industry very rapidly while staying true to their mission of connecting the world. Facebook is all about connectivity and eBay is a company that connects people very well. Their service lines fall easily into Facebook’s current platform and will help Facebook to continue to be the website people always want to be on.