It's steady as she goes for eBay (Nasdaq: EBAY) in its latest quarter.
The online auctioneer and PayPal parent delivered another period of modest growth with its online payments platform leading the way. Revenue climbed 10% to $2.5 billion once you back Skype out of the equation, in line with Wall Street's target.
Adjusted earnings on that basis climbed 24% to $0.52 a share, comfortably ahead of the $0.47 a share analysts were expecting.
PayPal continues to carry the company, with revenue climbing 22%. EBay's marketplace business climbed a mere 4%, failing to keep pace with the 12% growth rate that Internet tracker comScore pegs for this past holiday season.
The good news here is that eBay's guidance is somewhat encouraging. The dot-com giant sees revenue climbing by 12% to 15% to $10.3 billion to $10.6 billion this year. It's also targeting a non-GAAP profit of $1.90 a share to $1.95 a share, calling for 10% to 13% in bottom-line growth.
Uh oh. Revenue climbing faster than earnings? Slightly contracting net margins? Well, that's one way to look at it. I prefer to point out that analysts were banking on a year-ahead profit of only $1.85 a share on $10.2 billion. In short, it's a win on both ends of the income statement.
The real question here is what eBay plans to do with its $7.8 billion in cash and non-equity investments. The company's heady days of organic growth are gone, so initiating an aggressive dividend policy would help keep its share price stable. A share buyback is always possible, though it may not be such a good idea now that eBay's stock is trading near a three-year high.
However, the sexier move would be to put some of its idle greenbacks to work in needle-moving acquisitions. The company bought a couple of smartphone app developers last year, but it needs to think bigger in 2011.
Let's go over a few acquisition targets that make sense.
- MercadoLibre (Nasdaq: MELI) -- EBay already has a small stake in Latin America's leading online marketplace. It wouldn't be a cheap purchase, but growth investors may not mind the dilutive earnings for the sake of an uptick in growth.
- Overstock.com (Nasdaq: OSTK) -- The closeouts e-tailer would have been a bad fit for eBay several years ago, but they're more alike these days than you may think. EBay wants to be seen as a more conventional shopping site. Overstock is also embracing its role as a hands-off middleman, with just a fifth of its sales coming from wares that are stocked and fulfilled by Overstock itself.
- BuyWithMe -- If Groupon is out of its price range and Amazon.com (Nasdaq: AMZN) has stake in LivingSocial, BuyWithMe becomes the next most eligible social coupon website.
- GSI Commerce (Nasdaq: GSIC) -- If eBay has helped launch cottage industries, GSI Commerce provides the e-tail tools for merchants to kick things up a notch. Oracle (Nasdaq: ORCL) recently acquired Art Technology Group, so eBay better hurry up before all of the e-tail facilitators get snapped up.
Knowing eBay, it will turn its back on all of these logical targets. It'll continue to think small, delivering small growth spurts and thanking its lucky stars that PayPal is there to carry the load.
In short, 2011 will probably be the year of eBay's dividend.
What should eBay buy next? Share your thoughts in the comment box below.
