» Is Ebay a value stock?

Is Ebay a value stock?

December 14, 2006 on 2:08 pm | In Long Term Picks |

Well, not quite yet, but with a forward P/E of 26 and growth that is still impressive considering its size, Ebay is an excellent long term investment. Granted, it is not the screaming buy that it was this summer when it went under $25 a share, but Ebay should easily eclipse $50 a share in 2-3 years.

The Ebay naysayer’s point to slowing growth, management missteps, and the alienation of the core Ebay community through fee hikes. Although many of these are legitimate problems at Ebay, Wall Street Mayhem believes that the growth potential of Skype and Paypal will overshadow the problems.

With all the negative press Ebay received when they purchased Skype, one would think Ebay had purchased a dot.com era flop. Analyst downgrades and Skype bashing were all the rage this summer for those who follow Ebay’s stock. Did Ebay really overpay for Skype? The answer is a resounding no. Skype was a bargain and an excellent strategic move for Ebay. Let’s take a look at the numbers. Ebay paid about $2.5 billion for Skype (these numbers vary wildly depending on the news source). Despite many reports to the contrary, Skype is still growing. There at least 136,000,000 registered users, but that number really doesn’t tell us much about the core business at Skype. However, the daily users on-line numbers are very telling. It is estimated that the number of daily users has doubled from about 3 million when Ebay purchased Skype to about 7 million today. What do 7 million daily users and a still strong growth rate mean to Ebay? In short, big money.

A few days ago Ebay announced that in 2007 Skype users will have to start paying $30 a year for unlimited calling. Not a bad deal considering most other options including Vonage and the cable companies start at around $25 a month. Although this new source of revenue will not add up to much considering the massive revenues at Ebay, Skype is just getting started. Next year Skype will introduce services with Google and Yahoo that will allow web surfer’s to click a button and call any business they found during a search. Additionally, Skype could always start including tiny ads for the pc based calls that would really add up with a massive user base. Although Skype’s financial contribution to Ebay is minimal right now, in a few years Skype should contribute a large portion to Ebay’s total revenues and profits.

But who wants to talk on the phone over the computer? Not many people, but with the adoption of Skype phones that allow Skype users to use their Skype phone in much the same manner as a traditional land line cordless phone, Skype growth should stay on track. In 2-3 years Skype’s yearly revenue has a legitimate change to be higher than the $2.5 billion purchase price. Not many aquisitions can boast those kind of revenue numbers. Although there are still some hurdles and plenty of analysts that would disagree, here at Wall Street Mayhem we think that Skype will prove to be a bargain and will help fuel growth at Ebay for many years to come.

For a more in depth explanation of Skype growth check out the blog by Jean Mercier:

http://www.skypejournal.com/blog/archives/2006/04/skype_is_still_growing.php.

Check back in a few days for an in depth post about the virtually unlimited growth potential of Paypal and an analysis of Ebay’s core auction business.

Buy Ebay under $35, buy a ton of Ebay under $30. Price target: $50. Buy and Hold.

27 Comments »

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Nice call on Ebay. They nailed earnings last week. I guess you guys went positive a little early, but Ebay looks like it will be a good long term pick now that revenue and earnings growth are back on the upswing.

Comment by Alex — January 28, 2007 #
Buyers and sellers are fleeing ebay like rats on a sinking ship since the ‘hiding buyer ID’s” policy went into effect… hmmm, let’s see what happens with ebay stock $$$ over the next year or two.

Comment by Laurie Farnam — March 3, 2007 #
What are you talking about? There is no new policy of “hiding buyer IDs”. Sellers have always had the option of hiding IDs if they chose to, but very few use this method. “Fleeing like rats on a sinking ship”? Well, you’ve created a change that didn’t really happen and then added an effect that is not happening. The number of Ebay’s buyers and sellers is still growing strong and has actually never dropped in any 4 month period the companies existence.

Comment by Jerry — March 4, 2007 #
I have to agree that ebay has not yet hit the bottom…as much as the people holding the stock want to think it is a long term, it is not…ebay increases fees, at the same time, more users are not paying for auctions they win, sellers are leaving the community and prices for items are slowly shrinking as ebay has finally become over saturated…Meg’s greed has gotten the better of her, with no competition, it has allowed ebay to get fat and greedy and take advantage of the only “regular” customers that ebay has, the sellers, and lack of enforcement against the buyers for non-payment and increased fees, has driven out most of the people I know that were using the service daily…this spells trouble as Ebay will try to drain as much blood/money out the few people they have left….i will laugh when this stock hits $15-$20 a share in early 2008

Comment by db cooper — March 20, 2007 #
[…] Bidu bulls will argue that Bidu enjoys higher margins than Gmarket and Bidu has greater growth potential due to the rapid growth of the Chinese economy. Although this argument has merit, Gmarket has the potential to expand into the Chinese and Japanese markets which could rapidly accelerate revenue and earnings growth. Gmarket has previously stated plans for international expansion and fellow Wall Street Mayhem pick Ebay has struggled to grow in Asian markets leaving the door wide open for Gmarket to step in and gain market share. […]

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As an eBay seller for four years, and a person who knows a thing or two about business, I would not touch eBay stock with a ten-foot pole. EBay has been on a two-year-long mission to alienate buyers, drive away sellers, and ensure a “new feature” just about everywhere it is not wanted; and, they have “fixed” (in other words, ruined) almost every existing feature that was not broke. Furthermore, they continue to ignore legitimate problems that users consistently complain about, year in and year out. Yes, I think it’s safe to say that eBay is a perfect example of a grossly mismanaged company. And their stock proves it: after peaking at about $60 per share (specifically, at $120 “equivalent” value before the split) it plummeted to around 50 percent of that value within several months. Now, it appears to be mired within that $28 to $33 range or somewhere thereabouts. And, from my perspective, and many sellers who are indeed abandoning eBay *en masse*, I would agree with the sentiment posted above, that its stock has not yet bottomed out.

Comment by Big John — June 20, 2007 #
Ebay shorts always have the same story. They always say that seller and buyers are leaving at record rates. Please explain this Mr. Short (big John), if sellers and buyers are “leaving” as you say, then how do revenues and profits continue to grow every quarter? In reality far more new sellers and new buyers come to Ebay every quarter than the small amount that leave.

Comment by TraderJoe — June 21, 2007 #
That’s nice, but when customers leave Ebay in droves exactly where do they go? The Jersey devil is never wrong!

Comment by Jerseydevil — July 31, 2007 #
Everybody bought old Meg’s ivy league B.S. - the slobs who sell on ebay couldn’t possibly know what they’re talking about. Meg’s been turning a deaf ear to complaints and looking upon the sellers as money veins to tap at will to quench shareholders thirst for $. She didn’t use any type of innovation whatever… she simply upped the fees thinking sellers would never leave beloved ebay…then when it stopped working for her she started running listing sales whenever a shareholder’s meeting was coming up to boost revenue.

All anyone had to do was simply look into a forum… that is until the reich started pulling them when they decided the content wasn’t all warm and fuzzy anymore… Then all you had to do was google. The information was there all the time. Blame yourselves for swallowing the blue blooded blarney.

Comment by wanda — December 31, 2007 #
Looks like eBay is getting very close to that $25 share price mentioned at the start of the article. Is 2008 the right time to buy in? Skype + PayPal + Core Auction. Surely that’s a $25 value?

Comment by Cameron McKenzie — January 30, 2008 #
thank you so much.

Comment by kibris — March 23, 2008 #
I think eBay is struggling with identity. Does it want to cater to the “PowerSeller” with tons of the same crap that you can buy at Walmart or other big super stores for about the same price when you consider shipping charges or does it want to cater to the collector markets where often times there are one of a kind items offered… does it want to be a venue for the auto seller, the antiques dealer… who???

I think as they strategically make decisions (missteps) if you will the long run is that it hurts the business. They need to get back to the core concept of bringing buyers and sellers together in a community atmosphere. To achieve that community they have to figure out some decent fraud protection mechanisms. Buyers leave because they can’t trust sellers, sellers leave because they can’t trust eBay… and while there may be more buyers and sellers joining each quarter what is happening on the auction revenue side…increased fees to cover reduced completed transactions?

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Comment by xashruak — October 15, 2008 #
Ebay is heading out of the door. Too many big blundered and arrogance too. They ran off the sellers - that attracted buyers - by acting like a high school hall monitor (control freaks) and leading the Politically Correct charge. Whay pay fees at 20% to sell when national auction houses will do all the work for 10%??? Get outta here!

Ebay started by selling beany-babies and will end selling beany-babies. Soo, their stock is a $10.72 per share now. Each category of items that ebay banned for not being PC cost the investors. Craigslist has a large share of former ebay listings.

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