BABA Stock – Should Alibaba Buy eBay?

Alibaba baba stock logoAlibaba (BABA) just pulled off the largest IPO ever, with about $25 billion raised and a valuation well north of $100 billion as it started trading.

However, BABA stock has been pretty sluggish since then, with shares drifting down about 4% from their opening price at IPO two weeks ago.

So what will Alibaba do with all that money to keep BABA stock moving higher?

One harebrained idea: Purchase American e-commerce giant eBay (EBAY).

Ebay to Spin Off Paypal

eBay ebay stockOn Tuesday, investors learned that eBay will finally spin off PayPal, its mobile payment arm, sometime in 2015. The split will separate the legacy auction and e-commerce company from the fast-moving PayPal segment.

Without the attractive mobile payments element, eBay alone could be valued anywhere between $30 billion and $40 billion — a tall order, but not impossible for the likes of Alibaba after its huge capital raise via the BABA stock offering.

In fact, Alibaba has some $60 billion in cash and short-term investments on the books, so if this Asian e-commerce power wants to branch out into Western markets, an eBay acquisition could be its best bet.

The deal naturally relies on a fair valuation for eBay after the spinoff, as well as the will to dip deeply into the Alibaba’s coffers to finance the move.

But it’s not too crazy to imagine BABA going after eBay stock as a way to access new markets.

BABA Stock Has Its Own Challenges

Of course, serious questions remain about Alibaba’s core business that may need addressing first. Investors don’t have a lot of visibility into financials, given the recent IPO, so there will be added scrutiny on the next few earnings reports.

Furthermore, the valuation of Alibaba right now — a forward P/E of more than 40 for BABA stock at present — means that growth has to be very brisk in the core business to justify the price.

Still, the corporate governance of BABA stock consolidates power in the hands of a select few — and all it would take is a few members of this Alibaba cabal to swoon over an EBAY stock buyout for the deal to become reality in a hurry.

It’s worth watching the eBay spinoff for many reasons, but without PayPal, the core business might very well become an Alibaba buyout target in the next year or two.

Jeff Reeves is the editor of and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at or follow him on Twitter via @JeffReevesIP

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