Ina Steiner EcommerceBytes Blog
News and insight focusing on ecommerce.
by Ina Steiner, Editor of EcommerceBytes.com
Wed Apr 30 2014 13:11:47

What Should eBay Do with $6 Billion in Offshore Cash?

By: Ina Steiner

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Sixty percent of eBay Marketplaces revenue is made internationally, and eBay has been hoarding that cash offshore - it has close to $10 billion accrued. But in a surprise announcement on Tuesday, eBay said it would be taking a charge on its books to give it the flexibility to bring much of that money home.

eBay recorded a $3 billion charge taken on $9 billion of foreign earnings from prior years, meaning eBay is now free to use $6 billion in the U.S. (The $3 billion is on paper - eBay will write a check to the IRS when it uses any of that cash in the U.S. having now accounted for it on the books.)

Three billion dollars seems like a steep price to pay for $9 billion, but eBay has not been paying taxes on foreign revenue as it was earned.

Until Tuesday, eBay has been adamant that it would not make such a move for that very reason. When eBay CFO Bob Swan was asked in 2008 about bringing back its $3 billion offshore cash to the U.S., he said it would result in a "pretty severe tax rate penalty." (Analysts had been pressuring eBay to issue dividends and the company used that as a reason why it would not.)

eBay CEO John Donahoe referenced the policy reversal in the company's Q1 earnings release on Tuesday, saying, "Today, we also announced a non-cash tax charge to facilitate repatriation of $6.0 billion net in foreign earnings, increasing our available U.S. cash and enhancing our financial flexibility."

While several analysts asked eBay for more information about the decision, no one asked if the decision was due in part to pressure from activist investor Carl Icahn. But it seems rather coincidental that eBay would make such a sudden reversal and incur a $3 billion charge just after it got Icahn to back down from his proxy fight with the company.

In January, eBay announced its $5 billion stock repurchase authorization at the same time it disclosed the proposals it received from Icahn, who had at the same time been urging Apple to buy back shares of its stock.

eBay could use the cash in a number of ways, including the acquisition of U.S. companies or to help it execute its $5 billion share buyback program. eBay has already executed $1.8B stock buyback, leaving $3.8B authorization remaining for future repurchases.

On Tuesday, Bob Swan told analysts, "The reality is, we're seeing growing opportunities in the U.S." He mentioned the stock buyback and said eBay was executing aggressively. "Additionally, we're an acquisitive company, and we need to ensure we have the resources available to capitalize on targets that become available both domestically and abroad."

"Just to be clear," he continued, "we are not announcing any large, U.S-based acquisition, nor are we committing to finance our share buyback with offshore cash. What we are doing is ensuring we have the capital available for U.S. needs."

In addition to using the offshore cash to buy back the remaining $3.8 billion stock of its commitment or using it to purchase U.S. companies, eBay could use the cash to issue dividends to shareholders or it could invest the money in PayPal before spinning it off.

Donahoe has also been getting cozy with the Obama administration and serves on the President's Export Council. It's a stretch, but could eBay be promoting good citizenship (by paying taxes on foreign earnings) in an effort to influence the administration to ease trade restrictions?

What would you like to see eBay do with its $6 billion?

- Should it lower fees (it hinted fee changes could be coming, and while it wouldn't say which business might be the recipient - PayPal, eBay Enterprise or eBay Marketplaces - John Donahoe did mention he wanted to stem the decline in consumer-to-consumer auctions in Marketplaces).

- Should eBay/PayPal acquire other businesses - any ideas?

- Should it make improvements to eBay and/or PayPal, and if so what specifically?

Any other creative ideas on what eBay should do with $6 billion?




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Readers Comments

Perminate Link for What Should eBay Do with $6 Billion in Offshore Cash?   What Should eBay Do with $6 Billion in Offshore Cash?

This user has validated their user name. by: Puck

Wed Apr 30 13:38:45 2014

eBay will use 3.8 billion of the 6 billion to fund their stock repurchase plan.

They'll probably blow the rest on some new start up shiny object that catches Donuthole's attention.

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This user has validated their user name. by: Philip Cohen
Web Site

Wed Apr 30 13:56:02 2014

Under no circumstances will any of it be used to pay a cash dividend to eBay’s long-suffering "long" shareholders, and is it then any wonder that eBay's share price is continuing to fall ...

And, just think how much richer all those "long" investors would have been had they instead put the same amount of money into Amazon in August 2008 ...

Ho, Ho, Ho, it really is long past time for you to go ...

eBay Inc, where the incompetent mingle with the malevolent and the criminal ... http://bit.ly/11F2eas

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This user has validated their user name. by: WOODJUNGLE! ON EBAY

Wed Apr 30 14:34:46 2014

To take a $3B hit, something is up, IMO. Either an acquisition, which of course they won't admit to or a CYA move for something.

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by: gutspiller This user has validated their user name.

Wed Apr 30 14:37:06 2014

"John Donahoe did mention he wanted to stem the decline in consumer-to-consumer auctions in Marketplaces"

And who caused this problem to start with? The pope?

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This user has validated their user name. by: Ric

Wed Apr 30 14:37:34 2014

I am sure that John Donahoe will spend this money on acquiring new businesses to generate new revenue streams in order to further conceal the failure of his turn around plan to increase eBay marketplace sales at the same pace ecommerce is growing.

What he should be doing with a portion of it is addressing all the coding issues that cause the near daily glitches on eBay.

He should also ditch the "defect transaction" assault on his best performing sellers in order to stem the wave of negativity this latest attack on sellers has created.

Instead of lowering fees on auctions, what Donahoe should do first is to run an experiment which is long over due.

eBay's auctions have been declining steadily because Best Match does nothing to promote impulse buying. When was the last time anyone has a story about a bidding war between buyers that drove a widgets price significantly higher than expected? I have not heard such stories since eBay implemented Best Match as a default.

If he really wants to stem the decline in auction activity, he should ditch Best Match and restore Time Ending Soonest as the default sort order since Best Match does not motivate buyers to bid on items.

Another chunk of this money should be used to offset the costs of the Top Rated Seller Program which they were crying about.

Before it is implemented, he should roll back the seller defeating "defect transaction" system which has obviously been designed to significantly reduce the number of sellers who qualify for the 20% TRS discount.

Instead of undermining and demoralizing his best performing sellers with new standards designed to pull the rug out from underneath them, he should devote a portion of this new found revenue to promoting the fact that eBay has more Top Rated Sellers than they ever expected.

Building the buyer base by promoting the fact that eBay has motivated large numbers of sellers to improve their performance would do more to attract buyers back to eBay than the foolish 90 Day Holiday return policy requirement will ever do.

Bottom line is that none of this will happen because the MBA's calling the shots do not care about the marketplace or their sellers. Both are necessary evils management deals with in order to reap millions from their inflated compensation packages.

They would rather invest in a shiny new company that will bring millions to their bottom line than invest a dime to motivate their sellers and have them feeling good about the fact they sell on eBay.


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by: Massachusets Howler This user has validated their user name.

Wed Apr 30 15:33:45 2014

Hold on for the BIG- BIGGER THAN BIG- FEE INCREASE in the near-horizon.
That cash IS FOR STOCK BUYBACKS to fuel the employee stock ownership program- the only REAL program ebay is concerned with.
They have DRAINED THEIR COFFERS DRY awarding stock bonuses to ALL- including all the members on the ebay BOD!
As far as I could tell ebay was going to use cash they already had for the stock buyback?? so this is confusing to me, looks like ebay US has already spent the majority of their US cash and do not have enough for the remaining 3.2 billion for the already scheduled buybacks.

How can Bob Swan, in 1 paragraph say: "The reality is that we are seeing opportunity in the US", then in the next SENTANCE say "just to be clear, we are not announcing any USA acquisition".

These 2 statements do not mesh with one another- they say it is for US OPPORTUNITIES and then he says we see no US opportunities??

Ebay is in big trouble, that much is for sure.

Increasing auctions- that is HOGWASH- they have NO PLANS WHATSOEVER to do anything except what they have been doing- killing auctions.
It WOULD BE A SIMPLE AS ADDING BACK THE AUCTIONS ONLY TAB to searches and giving them a REAL boost as they are ending, THAT is ALL it would take- but they will not do it so it is HOGWASH.
Puffery,

Look at the MSN ebay stock page- large investors are leaving in DROVES- look at TR Price! The only big firm still buying in is Vangard- look at the mutual fund indexes and you will see what I mean, spdr is leaving, all the big risk-takers except Vangard are decreasing their ebay stake.
They ran out of US cash, raiding their available cash for the buybacks- running out of Money.
MB
Ebay just basically took the biggest CASH ADVANCE in History!

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This user has validated their user name. by: Ming the Merciless

Wed Apr 30 16:13:43 2014

Isn't it revealing that whenever the Ivory Tower discusses ebay and its strategic options that its customers are seldom if ever mentioned?

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This user has validated their user name. by: Puck

Wed Apr 30 16:18:52 2014

"John Donahoe did mention he wanted to stem the decline in consumer-to-consumer auctions in Marketplaces"

And who caused this problem to start with? The pope?

That was the Donahoeian equivalent to the burning of the Reichstag.

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This user has validated their user name. by: Puck

Wed Apr 30 16:33:56 2014

"What Should eBay Do with $6 Billion in Offshore Cash?"

Take it to Las Vegas and put it all on red.

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This user has validated their user name. by: Philip Cohen
Web Site

Wed Apr 30 16:51:39 2014

Actually, Johnny Ho should take a real chance and put the whole $9 billion on red ...

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This user has validated their user name. by: Puck

Wed Apr 30 18:26:26 2014

This jackass on Marketwatch has some ideas about how eBay should 'invest' this new dough:

http://www.marketwatch.com/story/ebay-has-the-cash-and-s
hould-buy-the-clippers-2014-04-30?siteid=yhoof2

I
think Donahoe should trade the entire 6 billion for a handful of magic beans.

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by: Massachusets Howler This user has validated their user name.

Wed Apr 30 19:44:15 2014

They BETTER sit on that money TIGHT.

Ebay said today:
"We ended the 1st quarter with a total of 11.9 billion in cash, equivalents and non-equity investments, including about 2.2 billion in the US".

How can this make sense?

They are repatriating 9B from international markets, that 9B is almost everything they own internationally (and inside the US). Then they state that "they have 2.2 billion here in the US".
So, if they repatriate 9B, give up 3B, they would have 8.2B here, and not much left to fund all of their international markets.

They would have funded the buybacks and been left with 5 billion for operating expenses and acquisitions inside the US.


This really does not seem economically wise.

Also, they are already committed to purchasing an additional 3.2B in share buybacks this year. Of course, this $$ will go directly back into the employee stock ownership program.

They APPEAR to now be FLEECING the international markets by over 95% of their international budgets, just so they can continue to fund the employee stock ownership program.

There isn't enough US money available to fund the 3.2B in additional STOCK BONUSES.

They need more "gifted" shares.

They may come out next week and say "We only need 4B" so everybody gets relieved and starts buying the stock again- this may happen.

That is what I would do, overestimate and announce, take the hit then announce what you really needed, take the bounce.

Mass Howler

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This user has validated their user name. by: Rexford

Wed Apr 30 19:55:23 2014

Gutspiller says "John Donahoe did mention he wanted to stem the decline in consumer-to-consumer auctions in Marketplaces" 'And who caused this problem to start with? The pope?'

So he thinks that he can revive the goose that laid the golden egg?  After he smothered it?  Very doubtful. As they say, you can't go home again.

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This user has validated their user name. by: Rexford

Wed Apr 30 19:57:40 2014

Yes, Amazon raised prices fairly recently so it is inevitable that eBay will as well.

Monkey see monkey do.

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by: Massachusets Howler This user has validated their user name.

Wed Apr 30 20:06:47 2014

You would think they would be piling debt sky high on ebay instead of this. They already have 4.64 B in debt so pile that debt up on ebay, that's the BAIN way.

As PP goes standalone (Their DREAM), they will let Ebay implode or just sell it off, along with the debt, and screw all the poor sellers.
(Then they will then just force other bigger sellers into GSI Enterprises- big box, less customer service)- no FB or dsr's.
This defect thing is just a part of their long-running steal and restrict plan for sellers.
So much going on that it is scary.
Had to add my 2 cents.
MB

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by: ConnecticutGal This user has validated their user name.

Wed Apr 30 20:34:52 2014

Interesting that Ebay chose to do this now.  My guess is that they haven't yet pushed the button to bring back the funds.  In light of Pfizer's run at AstraZeneca, in an effort to avoid taxation on THEIR overseas funds, the Fed Gov will kind of be forced to reduce the repatriation tax, and quickly.  Or Apple might decide to become a foreign company, too.  

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by: Arch This user has validated their user name.

Wed Apr 30 22:49:41 2014

Build their own warehouses and create a program similar to amazon fba.  

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by: PowerSeller2007 This user has validated their user name.

Wed Apr 30 23:03:10 2014

Buy Donuts for everyone!

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by: odona This user has validated their user name.

Thu May 1 02:35:18 2014

Actually we see a 2:1 transaction rate etsy to ebay for our stores which never even would have occurred if ebay had retained its old small store huge marketplace paradigm. They actually forced us out into the real world to find a marketplace that appreciated what we do.
I'm shocked to hear what little money there really is in the pot after debt and other liabilities. I suspect what's actually happening is that the ebay PTB are trying to grab back what little REAL cash is there before the smoke and mirrors get washed clean and it quietly becomes  eBay, a struggling little division of PayPal Bank.
Hey - just acknowledge that the grand plan to change the entire dynamic of the co. and go up against Amazon for the broader retail market was totally flawed in the first place and a guaranteed failure.
As for Pierre - if you think he gives a rat's ass which direction the company takes at this point you've missed the point...most likely any cash that does come home will be after those with the biggest stakes have divvied it all up.
In fact - why sell back to the company in this country anyway? Accept your payment in € or £ and let it land in the Caymans...

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by: justsaying This user has validated their user name.

Thu May 1 07:30:33 2014

They should can the Cassini search engine, can the cheap, desktop "rolling regional blackout" servers and get some mighty "worldwide" servers, and bring back "Voyager" search, get rid of the 30% over auction BIN pricing, get rid of "Best Match", invest in major eBay TV ad campaigns, and most importantly--leave the sellers alone!...and just sit back and let the market take over---then we'll see some sales and profits again!

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