eBay Ridiculously Cheap

eBay continues to struggle against current economic conditions with rather lackluster Q3 performance. It has reduced its Q4 guidance, raising doubts about a merry Christmas for the company this year.

Q3 revenues of $2.12 billion were marginally lower than the market’s expectations of $2.13 billion. Revenues increased 12% over the previous year. EPS of $0.46 rose 7% sequentially and 11% over the year. The Street was looking for EPS of $0.41.

Marketplace transactions brought in $1.38 billion, lower than the $1.5 billion contribution the previous quarter, and thus represented a consecutive sequential reduction. Revenue from this segment grew 4% over the year. Active users grew 3% over the year to 85.7 million, and new listings increased 26% over the year to 700 million.

PayPal grew at a much higher rate of 27% and contributed $0.60 billion revenue for the quarter with more than 65 million active user accounts. Skype’s user base also continued to increase by 51% over the year to 370 million and contributed $0.14 billion revenue.

During the quarter, eBay repurchased 25 million shares at a cost of $623 million.

eBay’s acquisition strategy also seems to be on a roll right now. The company acquired a leading online transaction credit provider – Bill Me Later – to add to PayPal’s leadership position in online payments, for $945 million. Previously, Bill Me Later was a direct competitor to PayPal, which eBay acquired in 2002, and was being financed by its archrival Amazon (AMZN). Bill Me Later already has over four million customers on sites like Amazon, the Apple Store, JetBlue (JBLU) and Wal-Mart (WMT). For the year, it is expected to finance $1 billion worth of purchases with $125 million in revenues. The company is not yet profitable, however, and the acquisition will result in lower margins for eBay. It will be interesting to see what Amazon’s next steps will be following this acquisition.

eBay also announced the acquisition of Den Bla Avis, a Danish classifieds specialist, and a vehicle site, BilBasen, for $390 million in cash. The company expects these acquisitions to strengthen its presence in Europe.

Despite its acquisitions, in view of the economic conditions the company revised down its outlook for the full year to $8.525-$8.675 billion with EPS of $1.69-$1.71. For Q4, the company revised the guidance to $2.02 - $2.17 billion while maintaining EPS guidelines of $0.39-$0.41.

With these acquisitions, eBay does seem to be finally moving somewhere directionally. Meg Whitman’s departure positioned the company for a turnaround, but John Donahoe was not taking full advantage of the opportunity. The strengthening of its payment business certainly seems like an astute move. It has been eBay’s greatest asset for a long time now, and over the next decade, I would not be surprised if eBay becomes more of a payment company than a marketplace.

I am still not bullish on the stock. The company still hasn't sold off Skype, and its user experience still leaves a lot to be desired.

The stock is currently at its lowest for the year, and lowest in the last five years, at $13.26. A year ago, it was trading at $40.67 – a 67% erosion of value. The market cap is around $18 billion. This can’t be fair!

 

Disclosure: None

Comments

[downwithebay:]

Although I would agree with you about ebay being cheap based on the numbers.....one thing I see worth noting is this:

The vast majority of larger business ebay is favoring at ebay marketplace like manufacturers, mass merchandisers and large volume sellers almost all have their own websites, and a very large percentage of these businesses getting most of the exposure on ebay do in fact try quite hard to promote their website once the intial sale has been made. Virtually every time I purchase something on ebay from a top 50k seller that offers alot of products and generates alot of monthly sales on ebay, these same selers immediately after the sale encourage me to shop their websites to make future purchase and typically offer a 10-25 percent coupon to encourage me to shop their website.

Let's face it... manufacturers, mass merchandisers, online retailers and large volume sellers typically do have their own online website along with their own merchant checkout account. The average fees on a merchant account are typically 3-4 percent for credit cards. On ebay the fees associates with a sale is roughly 12 to 15%.depending on the item, plus an addition 3 percent paypal fee, a 30 cent transaction fee and an ebay listing fee. All thos fees really add up and cust into profit margins for these businesses, SO majority of them use ebay's platform as advertising mainly to drive more and more ebay shopper to their websites to make future sales and can typically offer a attractive buyer incentives to do so. It also enables these sellers to get their website URL alot of free exposure which avoids alot of search engine pay-per-click fees.

I believe over both the short term and long term ebay will regret making ebay marketplace a shopping portal almost exclusively dessigned for online retailers, wholesalers, manufacturer and other larger businesses and expect an ongoing downward trend in ebay user traffic which ultimately will also impact paypal revenues as well.

2008 Oct 17 09:55 AM

[downwithebay:]

I apologize for all the typos...I'm in a rush, but wanted to take the time to respond to your article

2008 Oct 17 09:58 AM

[Bruce Cullen:]

I think eBay is way undervalued here, with a company with a household name like this and a base for many people who may loose their jobs to sell merchandise, this one will hang in there even in a job loss economy.

eBay and Skype have enormous potential, Skype will continue to become the basis for phone calls worldwide and this will be bigger then anyone is expecting. Skype will be soon on every cell phone as an add on and everyone will pay a decent fee to use it, as the fees to use Skype will be 50% lower to make international phone calls. Add it up, it's a huge chunk of AT&T, Sprint/Verizon, etc.

Expecting 25/share again shortly.

Bruce Cullen - Founder
WebPublicitee.Com
TranceElements.Com

2008 Oct 17 11:13 AM

[Wake-Up!:]

Thanks Bruce,

Your check is waiting for you at the front desk.

-John

2008 Oct 17 01:57 PM

[dlweld:]

Amused at fellow expecting EBAY to suddenly turn around - a household word for sure - like mold or slime or garbage - EBAY's turned into the company that folks love to hate - word of mouth built ebay - it'll tear it down too. We'll be seeing greater momentum on the downside - why would anyone go there? Check out the totally negative comments on the blogs - these are not just the whiners - these are real, normal folks who've all had very bad experiences on ebay -

2008 Oct 20 01:25 AM

[Mama who sh...:]

Well, I LOVE Ebay. It is an awesome and refreshing forum for shopping. Your money goes to the regular family that is selling things they no longer want. I buy all of my clothes and my kids clothes from e-bay, and am very selective of who I buy from . I have bought literally a ton of things from ebay, and I was only burned one time by a seller whom I decided not to pursue through the Ebay routes. Ebay ROCKS!!!!!

2008 Oct 23 07:19 PM

[eBay +++:]

Bruce your on the money about Skype. I think John would be stupid to sell it now, who cares about the synergy betweem eBay and Skype? If you have something that's rapidly growing why would you dump it, market pressure, please. The Analyst are trying to pry it from eBay's hands, it won't happen. Skype's got too much potential, it's just been slower coming than expected. This economy will push it a long too. I have a Skype Pro account, Skype-In # with VM, and a PC less Skype Phone. Save huge dollars over AT&T and call long distance all I want. I love it.

2008 Oct 28 11:51 PM

[Beyond-the-...:]

Bruce an eternal optimist you may be, however if you have been a seller on ebay recently you would realize that your mentioned price is not going to happen. Would you like a little wager that ebay will not go near $25 anytime soon ? The problem(s) can be summed up in one word , Donahoe !

2008 Nov 11 11:34 PM