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Tuesday, June 21, 2005

How much will Google Wallet impact eBay (GOOG, EBAY)?

The Wall Street Journal reported that Google (ticker: GOOG) is preparing a payment service to rival eBay's (ticker: EBAY) PayPal. Here are extracts from the reactions of two sell-side analysts:

Mark Mahaney, Citigroup

Google Wallet? + for GOOG and -- for EBAY

*    It is being reported in the press that Google plans to offer an online payment service this year that might offer the same functionality as eBay's PayPal solution.

*    In our recent initiation reports, we highlighted the launch of a GOOG payments solution as a material negative catalyst for EBAY and as an example of GOOG's underappreciated potential for expanding into new areas.  Ata the time, we had anecdotal indications but not concrete evidence.

*    Further channel checks in the wake of these reports have provided us with more indications that Google will be launching a payments solution.  There's arguably enough smoke now to make the "fire" call.  So...

*    We reiterate our Buy (1H) rating on GOOG and our Hold (2H) rating on EBAY.  At the margin we have greater conviction in these calls.  No change to estimates, but slightly increased risk to our out-year EBAY estimates.

David Edwards, American Technology Research

GOOG:  Paying Google

On Friday, the Wall Street Journal reported that Google is developing a payment service code named Google Wallet. We have confirmed with our industry contacts that this product is in development and believe that Froogle is being kept in beta until the payment system is ready to be released. Note, Google has many products in development and it is uncertain if or when any of them will be released. So we caution investors not to consider this product a done deal until it is actually released.

We believe that an integrated payment system would be a benefit for Google. By providing a payment system that is integrated with Froogle, Google could provide an easy way for consumers to find products through Froogle and then purchase them from merchants using the Google Wallet. Google could also integrate a payment system into its search service, allowing customers to seamlessly pay for access to for-pay content that is found during a Google search.

At the moment, this event does not change our view on eBay and we explain why in the attached note.

While we view this product positively for Google, we cannot make any conclusions on the impact to the company without better understanding the scope and timing of the product release. We maintain our Buy rating.

On Friday, the Wall Street Journal reported that Google is developing a payment service code named Google Wallet. We have confirmed with our industry contacts that this product is in development and believe that Froogle is being kept in beta until the payment system is ready to be released. Note, Google has many products in development and it is uncertain if or when any of them will be released. So we caution investors not to consider this product a done deal until it is actually released.

We believe that an integrated payment system would be a benefit for Google. By providing a payment system that is integrated with Froogle, Google could provide an easy way for consumers to find products through Froogle and then purchase them from merchants using the Google Wallet. Google could also integrate a payment system into its search service, allowing customers to seamlessly pay for access to for-pay content that is found during a Google search.

At the moment, this event does not change our view on eBay and we explain why in the attached note.

While we view this product positively for Google, we cannot make any conclusions on the impact to the company without better understanding the scope and timing of the product release. We maintain our Buy rating.

EBAY chart below.
Big3_3

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Posted by David Jackson on June 21, 2005 at 12:02 AM in Sub-sector: E-finance, ticker: EBAY, ticker: GOOG | Permalink

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Comments

It's interesting. Not sure if retail clients know this, but Mahaney was Edward's boss at AmTech Research. This was before Lanny left to become Monster's CFO.

Posted by: OilGuy2003 | June 21, 2005 08:25 PM

I think these analysts have it wrong. IMHO, Google is not building a PayPal-like system to be used by third parties in e-commerce. Rather, it will combine its existing pay-per-click advertising platform, which allows users to open small accounts using a credit card, with its patent-pending technology to enable pay-per-view of newspaper, magazine and journal articles, as well as video and other media. Google Wallet (or whatever) users will be able to search through paid content and pay to view it, with a revenue cut delivered to the publisher.

Posted by: Susan Kuchinskas | June 22, 2005 05:04 PM

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