Ebay’s (EBAY) recent acquisition of Zong has us finally interested in the name again. Ebay stock has been doing well this year but let’s be clear it hasn’t been the talk of the town in Silicon Valley for quite some time. Zong may be one of the firm’s most recent high profile acquisitions in 2011 but it’s actually the seventh this year! Other acquisition names have included GSI Commerce, Magento and Where. Now the flurry of acquisitions according to the firm has to do with “buying businesses and technology that can help it work with more merchants as commerce moves increasingly online.” So here comes the controversy “is Ebay on the offense or the defense” in relation to this transition in commerce. While Ebays’ recent string of acquisitions are interesting to say the least and have some offensive characteristics, we think that this recent activity comes from defensive origins but we’ll let you decide.
Who or What is Zong?
Zong is a name only a mother could love. In the simplest context, Zong lets shoppers pay through their mobile phone account. When checking out online, a customer can now complete a transaction by entering his or her number. It’s a Pretty novel idea given how it’s even more convenient and simple to pay for something online. The recent acquisition has allowed EBay to attain access to roughly 3.2 billion mobile users through relationships with more than 250 wireless carriers operating in 45 countries. In our opinion, those are huge numbers. At a minimum, EBay has acquired a firm with plenty of traction and potential but what needs to be seen now is how it contributes to the top and bottom line.
What does this really do for Ebay?
Zong should help the PayPal unit drive much deeper and faster into mobile commerce to see what the real potential is. Is this the next frontier in commerce, you ask? The potential is definitely there but the answer lies with the consumer. It really depends on whether consumers feel it’s even more convenient, trustworthy, and efficient than the current options available. With 100 million users of PayPal now able to pay and fund their account through their phone, EBay will get a definitive answer one way or another. At face value, this acquisition should be very accretive right off the bat for the firm and is definitely its newest X-Factor.
Bull Camp:
For Ebay bulls, Zong couldn’t have come at a better time. It just adds momentum and hype for the firm. With the firm’s stock already performing well, this could easily be the next catalyst the firm needs to break into highs for the year. As well, proponents of the stock are quick to point out that PayPal will effectively be able to dominate two of the five payment options available for online checkouts. When the CEO of Ebay was questioned about whether this acquisition was defensive or offensive in nature, his response was “I think it’s the other guys who are trying to compete with us.” Well that let’s you know where the CEO stands on the subject.
Bears Camp:
In some ways it tough to say Ebay isn’t playing some type of defense as it tries to take an offensive acquisition approach. Bearish investors probably have a hard time believing that any move in 2011 has been offensive given the fact that in May 2011 alone Sprint (S), MasterCard (MA), Citigroup (C), and Google (GOOG) all started offering a mobile phone payment option. Yikes! Talk about competition cropping up this goes without saying. Given this reality its tough to downplay the bears point.
To some degree we think even bulls can understand where the bears are coming. Still, PayPal CFO, Patrick Dupuis, denied that the acquisition of Zong had anything to do with recent increase in competition. Really? Nothing at all you say? It may be a great acquisition but to make such a strong statement sounds a little foolish. We hope they’re watching what their competition is up to one way or another because saying or implying that they’re “oblivious” doesn’t score them any brownie points with investors.
Call to Action:
Ebay looks pretty hot. With cash on hand and an X-Factor like Zong we think the firm has potential to go higher. The competitive landscape looks tough at first glance but we think a lot of new players are just dipping their toe to see if it’s easy money to be made or not. We question the commitment of some new players in the space. For investors looking to access the mobile commerce movement, this is the name to be in. If we had to take a definitive side on the debate, we would be bulls and say they firm is a BUY given that it seems the firm is regaining substantial steam. Ultimately though this is the decision of the investor and the only real question to ask is whether you fall into the bull or bear camp.
Disclosure: I am long C.
