Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



eBay's Killer India Deal

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

eBay  (NASDAQ: EBAY  ) is taking a page from Yahoo!  (NASDAQ: YHOO  ) playbook and reaping the rewards of investing in a third party rather than only betting on building its own business locally. Yesterday, eBay invested $134 million into India's Snapdeal in a follow-on offering that comes less than a year after the company invested $50 million.

Combination of buying as well as building
According to a recent interview with Mint, one of India's leading business newspapers, Jay Lee stated that eBay India "has 5 million registered users (globally, active users are 112 million)," so why make an additional investment in a local company? Snapdeal competes with eBay, but it focuses more on businesses than individual transactions. Perhaps the opportunity is so great that it makes sense to prevent the competition from gaining an edge.

Stiff-arming Amazon
When the original investment was made last year,  (NASDAQ: AMZN  ) was rumored to be competing for the same piece of the pie. Keeping Amazon from improving its position in one of the world's largest markets is worth a good deal more than the initial $50 million investment. Keep in mind, $50 million to eBay is only 1% of its operating cash flow from 2013, a small price to pay for its seat at this table.

Yahoo!'s Alibaba deal set the template
In 2005, Yahoo! paid $1 billion for a 40% stake in Alibaba in what could be one of the best investments of all time. According to Investors Business Daily, the IPO range for Alibaba is expected to be $100 billion-$150 billion when the company goes public later this year, making Yahoo!'s stake worth $40 billion-$60 billion. If this is the case, the stake in Alibaba would exceed the valuation of the parent company.

Growth is shifting to BRIC
Emerging markets such as Brazil, Russia, India, and China have seen a tremendous growth trajectory over the last five years as the U.S. markets have slowed. Established companies like MercadoLibre  (NASDAQ: MELI  ) , which focuses on Brazil, continue to see rapid 26% year-over-year revenue growth, but the potential customer base doesn't come close to the target markets of China or India. The population of Brazil at 200 million doesn't come close to that of China at 1.3 billion or India at 1.2 billion.

More deals to follow
Going forward, it is likely that we will see more deals like this. Technology is not new to incubating start-ups that run adjacent to their businesses. Over the years, Oracle has acted like a zamboni, sweeping up small software companies that come into its path. It has come to a point where venture capital deals like Snapdeal or Alibaba are a way of outsourcing operating risk to a third party so shareholders don't get burned by huge write downs.

From a financial standpoint, if the IPO range for Alibaba comes out near $100 billion, and Snapdeal can also get 1/10 that price, eBay stands to make a handsome return on its $200 million dollar investment.

If you could only pick one stock in 2014, this would be the one
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2857630, ~/Articles/ArticleHandler.aspx, 8/29/2015 3:25:41 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

David Eller

I started contributing to the Motley Fool in 2013. I have held research positions at two investment banks and two hedge funds before trying more entrepreneurial ventures. I'm passionate about helping people find freedom in financial independence. Feel free to add comments and start a discussion. I hope to use these articles as forums to learn from you as well as share my opinion.

Today's Market

updated 18 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
EBAY $27.25 Up +0.15 +0.55%
eBay CAPS Rating: ****
AMZN $518.01 Down -0.36 -0.07% CAPS Rating: ***
MELI $113.19 Up +1.22 +1.09%
MercadoLibre CAPS Rating: ****
YHOO $33.14 Down -0.55 -1.63%
Yahoo CAPS Rating: ***