EBay and StubHub

An article in last week's Wall Street Journal detailed the acquisition of StubHub by EBay. I wrote about StubHub in a post here, last September.

In my earlier piece, I asked why TicketMaster and its clients didn't accept the responsibility for doing a poor job of ticket pricing, in order to get guaranteed, although lower, upfront revenues across their many venues.

In this piece, discussing the upstart's acquisition by the online auction giant, the focus is missed opportunities. Doesn't EBay's purchase of the ticket reseller sort of indict their own business development model? StubHub is only six years old. If this doesn't demonstrate EBay's paucity of ideas now, what does?

As an online resale venture, EBay should have owned this market. Instead, it had to cough up $310MM for it. And we're not talking about buying a corporate titan. StubHub is a shoestring operation, compared to either TicketMaster or EBay.

As with many other businesses which have outgrown their initial, value-adding concept, EBay now seems to have to grow revenues at much lower margins than in the past. In this case, paying upfront to secure access to a business they missed starting themselves earlier in this decade.

Dell, Home Depot, Wal-Mart, Microsoft.....these are all companies whose core value-adding breakthrough eventually exhausted itself. As the Yahoo-sourced chart on the left demonstrates (please click on the chart to view the enlarged version), now EBay is joining them. The firm outperformed the S&P500 during 2002-04, and then began to slide. Since 2004, it has actually declined in value, while the index has continued its steady, gentle rise. So, while EBay has outperformed the S&P over the entire period, it has not consistently, nor recently, outperformed it.

It's not wrong, per se, for EBay to be buying StubHub. However, I think it's a sign that you won't be seeing the firm return to earning consistently superior total returns for its shareholders anytime soon. If they can't grow profitably and organically in their own product/market space, what do they possess with which to add superior value for their customers and, thus, indirectly, their shareholders?