EBay Makes Bid for Chinese Market Power

EBay (Nasdaq: EBAY) is making a bid for China's Internet auction business by purchasing Taiwan-based online auction company NeoCom Technology for US$9.5 million in cash, plus an additional payment to be determined when the deal closes.

"It's obviously a move to get a foothold in Asia, and it's just $10 million, which EBay can easily afford," Morningstar.com analyst David Kathman told the E-Commerce Times.

The NeoCom purchase also serves as a way for EBay to enter the largely untapped Chinese market. "China is a huge market, and Taiwan is a stepping stone to mainland China," Kathman said.

International Growth

In an effort to reach its target of $3 billion in revenue by 2005 and to expand its international reach, EBay has been trying to establish itself in as many markets as possible. The company already has sites in 21 countries, including the United States.

According to Kathman, EBay is still growing at a faster than 50 percent clip annually, but such growth cannot go on forever without significant international expansion.

EBay's international business accounted for 18 percent of the company's net revenue in the fourth quarter of 2001, up from 16 percent in the third quarter.

Made in Taiwan

Taiwan is a particularly lucrative market for the auction giant. "Taiwan would be a pretty good fit for them because it's fairly affluent. That's good for EBay because those people are more likely to have computers and have stuff they want to sell on EBay," Kathman said.

According to research firm IDC, Taiwan has more than 6.5 million Web users, making it the third-largest e-commerce market in Asia and the ninth-largest in the world. Meanwhile, Neocom has cornered the online auction market in Taiwan, operating both UBid.com.tw and Bid.com.tw.

Problems in Asia

EBay has had mixed results in Asia so far. "East Asia has been a little bit of problem. Japan is one of those few markets where they're not Number One," Kathman said.

According to published reports, EBay plans to withdraw from the Japanese market, in which it faces stiff competition from Yahoo! Japan. EBay also has sites in Korea, Singapore, Australia and New Zealand.

EBay said the transaction will not have a significant impact on 2002 net revenue, although additional operating expenses related to the deal are expected to slightly reduce the company's earnings in the second quarter of 2002.

EBay said it now expects earnings of between 31 and 32 cents per share in the first half of the year, and between 69 and 72 cents per share for the full year.