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Will eBay's New Focus Help It Return to Glory?

Jeremy Glaser

Jeremy Glaser: Hi, I'm Jeremy Glaser, markets editor for Morningstar.com, and I'm here today with Larry Witt, our equity analyst covering eBay EBAY. Now, eBay is a stock that's been in the news a lot recently, and I have a couple questions for Larry. The first is, Larry, why is eBay getting rid of Skype? Is this a merger that was just never going to work out?

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Larry Witt: Yeah. Well, I think you've got to take a look back at eBay's history. A few years ago, their core business really started to slow down. We think the management team was desperate to return eBay to a growth stock, to keep the shareholders happy.

And ultimately, when you look back on it, this was just a company that really, speaking of Skype, had no synergies with eBay's core businesses. They touted it as a great standalone business, as well as something that could be used on the eBay platform so buyers and sellers could talk to each other, and they touted all the great synergies that would happen with this acquisition, and those never really materialized.

Now you're seeing shareholders want eBay to get back to its core, the core marketplaces division, as well as focusing on PayPal, and quit making acquisitions that really have nothing to do with these businesses. So, I think, that's the main reason they're getting rid of Skype.

Jeremy Glaser: So, how do you view the acquisition of Gmarket GMKT, the South Korean marketplace that they've just recently announced, then?

Larry Witt: I think, that goes right along with this strategy of getting rid of assets like Skype and StumbleUpon, which is another company they acquired a few years back that they just got rid of, and really getting back to their core.

And Gmarket really is an example of something that eBay should be in. It's an online marketplace that just connects buyers and sellers, just like eBay does here in the United States and a lot of other countries. And in fact, eBay does have their own marketplace company in Korea, but Gmarket has taken the leadership position there, and we think it's a great opportunity for eBay to really consolidate that market and be, far and away, the leader there.

Jeremy Glaser: So, do you think that after they spin off Skype and spin off these other unrelated businesses that eBay is going to be able to return to the profitability and return to the growth they saw before?

Larry Witt: They'll probably never return to the growth that they once saw. But, if they can focus on their core businesses, which is the marketplace division and PayPal, they can be a more stable company, a more focused company. And ultimately, that should lead to some pretty solid profitability, which then they can return to shareholders through buybacks, or possibly even a dividend sometime in the future.

Jeremy Glaser: Oh, that sounds great. Well, thanks for talking me today, Larry. Again, I'm Jeremy Glaser for Morningstar.com. Thanks for watching.

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