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eBay to Buy

Updated from 6:13 p.m. EDT

In a move that gives its network of small retailers deeper access to Internet searches, eBay (EBAY - Get Report) is buying (SHOP) for $620 million in cash.

Mountain View, Calif.,-based eBay will pay $21 a share for, a company based in Brisbane, Calif., that specializes in comparison-shopping. closed Wednesday trading at $17.44, up 2.2% for the day, so eBay is paying at least a 20% premium over the value the market most recently gave to the company.

The $620 million price tag is 4.7 times's estimated sales for 2005 and 4.4 times's cash, cash equivalents and marketable securities as of May 31. By comparison, the $1.85 billion that IAC/InterActiveCorp (IACI) is paying for search engine Ask Jeeves (ASKJ) is 4.8 times Ask's estimated 2005 revenue.

In after-hours trading,'s stock was up another 20% at $20.88. eBay was down 1.3% at $38.60 in after-hours trading at $39.11, erasing some of the 3% gain in the Wednesday session.

Bill Cobb, president of eBay North America, said the purchase of a search engine focusing primarily on traditional e-tailing sites doesn't mark a shift away form eBay's core market of online auctions. Instead, he said, the acquisition was made in response to needs voiced by the mom-and-pop retail shops that populate eBay's online marketplace.

"A lot of our bigger sellers are by nature looking at many ways to sell their product," Cobb said. "We want to be servicing that need."

Some of eBay's larger sellers, many of whom built their businesses by catering to the value-driven customers who flocked to eBay's auction site, have been itching to explore alternative ways of reaching new customers -- such as the sponsored-link ads offered through Google (GOOG - Get Report) and Yahoo! (YHOO - Get Report).

In addition to instant access to one of the highest-profile comparison-shopping sites, offers eBay a quick route to sponsored-link ads. Nearly half its revenue has been coming by displaying listings from online advertisers, especially Google, which pays when its users click through to the Google advertisers' Web sites.
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