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November 03, 2006

ebay bowing out of China?

China Rumors have been swirling for months about eBay bailing out of China by selling/creating a JV with a partner there.  The top name has consistently been Tom.com, but Tencent and Sohu have also been mentioned.

Ina@AuctionBytes has received a tip that this is a done deal and will be announced soon.

In talking to buy-side and sell-side analysts I was surprised that they pretty much view this as a positive.  The thinking goes that if eBay can get China and hits large investment/P+L/profitability hit, the stock will pop nicely.

Personally I think that's a little short-sighted because it seems to me that if eBay surrenders China to Taobao, and previously surrendered Japan to Yahoo!, and most feel Korea is now at risk due to Gmarket taking share, you have a long-term scenario with eBay completely out of Asia (minus Australia where they are dominate), and all of the ecommerce data I look at shows Asia as the Global growth engine for the next 5 years.

It will be interesting to see if a) the rumors are true and b) what the stock does as a reaction.

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From an article ironically titled "eBay's Meg Whitman Named CEO of the Year by CBS MarketWatch"

"...The virtue in acquiescence

In early 2002, Whitman still believed EBay would compete and win against PayPal. It wasn't clear to her that PayPal's payment service was hands-down better than what EBay's development team put together. She thought EBay could derive more payment-service revenue from each purchase without the need for the deal.

But after months of watching EBay's customers repeatedly choose PayPal over EBay's service, she said customers eventually made the decision for her. She began the task of rallying Wall Street and holdouts on her own management team to back the PayPal purchase, and recommended it to her board..."

http://www.benchmark.com/news/sv/2003/09_18_2003.php

EBAY is not necessarily leaving China. If anything, they would conclude a deal like Yahoo! did with Alibaba. They will cede EBAY Eachnet to Tom (or the others) in exchange for stock in the combined company. Meg has repeatedly said China is important and so this is the only real way to allow China to be better exploited and still participate in the upside.

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