eBay: GameStop Formally Launches a Bid to Take Over the E-Commerce Giant

Key Morningstar Metrics for eBay

• Fair Value Estimate
  : USD 67
• Morningstar Rating
  : ★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

GameStop proposed acquiring eBay EBAY for USD 125 per share (USD 55.5 billion) in cash and stock, after building a 5% stake in the e-commerce operator. The cash portion of the tie-up is to be financed via USD 9.4 billion cash on hand and up to USD 20 billion in debt financing. EBay’s shares traded up 5% on the news.

Why it matters: Driven by structural declines in physical gaming, we think GameStop hungers for eBay’s cash-generative marketplace. However, we think eBay’s recent sales and profit gains stemmed from stepped-up investments in technology and marketing that could be rationed under a new owner.

• GameStop targets USD 2 billion in cost cuts (which equates to 17% of the combined entity’s 2025 cost of goods sold and operating expenses), including a 50% reduction in marketing. This could impede the acquisition and retention of valuable enthusiast buyers, which drive 70% of eBay’s gross merchandise volume.
• Beyond massive cost-cutting, we posit that GameStop intends to utilize its roughly 1,600 retail locations as a national network for authentication and fulfillment, which could help negate long-standing consumer-to-consumer friction within eBay’s platform.

The bottom line: We maintain our USD 67 fair value estimate for narrow-moat eBay. We view this unsolicited bid as a byproduct of GameStop’s grow-at-any-cost mandate, fueled by a compensation structure that could award its CEO, Ryan Cohen, up to USD 35 billion if aggressive expansion targets are hit.

• We estimate the deal would saddle the combined entity with leverage at a staggering 10.6 times debt/EBITDA based on fiscal 2025 profits. Despite the potential for operational synergies, any gains realized would not, in our view, be sufficient to warrant such financial risk.
• While we think these risks will thwart an eventual tie-up, we view shares as overvalued at current levels. From where we sit, the market doesn’t seem to appreciate the outsized marketing spending required to maintain its current trajectory, which will curb margins.