For quite some time, Motley Fool Stock Advisor selection eBay (NASDAQ:EBAY) was the prototypical growth story. It was a perfect example of a pure Internet company with seemingly unstoppable growth. Customers were loyal. eBay was a super brand.
But lately, the company has shown signs of slowing top-line growth. In the meantime, an upstart has been rapidly taking eBay's place as the marquee Internet stock: that is, Google (NASDAQ:GOOG).
Yet eBay is certainly not giving up its coveted spot without a fight. Its strategy? Use its deep resources to buy growth companies. Some of the recent deals include Rent.com and craigslist (in which eBay purchased a minority position).
Then yesterday, eBay shelled out $620 million for Shopping.com (NASDAQ:SHOP).
Interestingly enough, a few years ago, Shopping.com was part of the dot-com living dead. However, the company engineered a merger of Epinions and DealTime. The new entity, Shopping.com, then struck a key distribution deal with Google.
It resulted in a miraculous turnaround; Shopping.com went public last year. The re-engineered business model was critical to the success. Essentially, Shopping.com allows merchants to easily list their products online. In turn, the merchants gain access to more than 20 million unique visitors per month. What's more, there is a comparison-shopping technology platform that allows consumers to search for good deals. And they can write up their opinions about the products.
The problem? It's still a small company. In the first quarter of 2005, Shopping.com posted revenues of $28.9 million and profits of $3.9 million.
As I mentioned in a previous piece for The Motley Fool, the company would need to invest significant amounts in infrastructure and marketing costs to keep growing. So why not sell out? It's a smart move. Shareholders get a 20% premium, and Shopping.com will have access to the necessary resources to execute on its business model.
The deal certainly expands the business of eBay. It gets new customers, a sophisticated community platform, and a large merchant base. What's more, eBay now has two more strong brands -- Shopping.com and Epinions.com.
But the deal is another sign that eBay is worried about its growth prospects as it casts its net ever wider. Yet even though the Shopping.com deal is eBay's biggest transaction since PayPal, it likely will take time for it to make an impact on eBay (given Shopping.com's relatively low revenue base). So if eBay is intent on ramping up growth, this may not be the last of its acquisitions.
Fool contributor Tom Taulli does not own shares in the companies mentioned in this article.
