What Are Analysts Saying About eBay's Analyst Day?

Wednesday eBay (EBAY) had their first Analyst day in three years. We had lots of coverage here at eBay Strategies and are continuing with the Wall St. reaction followed by one last summary piece later today. Here's a guide to the coverage:

• Part I - Donahoe opening remarks
• Part II - Paypal
• Part III - eBay Marketplace.
• Questions sellers wanted to ask (collected from twitter)
• Part IV - Q+A
• News round up
• Wall St. Analyst' thoughts
• What does Analyst day mean for sellers (coming soon)

Usually after an event like this the stock analysts issue reports. These reports include interesting nuances that in many cases were picked up in side discussions and what-not. It's also interesting for eBay sellers to understand what's going on as frequently marketplace-moving changes are introduced at a high-level at these events. Strategically, understanding where eBay is going can help sellers plan their strategies for the coming year(s) and plan for where eBay should be in that mix.

Analysts tend to use these opportunities to also change their view on a company. Analysts have some combination of a rating (buy, sell, hold, underperform) and some have a price target. Movements in these can move markets of course, but I also look at them as signals. In this case, everyone in the eBay world is looking for some sign of the bottom of the marketplace's problems and when analysts get bullish that would be a strong signal.

Here's a quick recap of the analyst notes I've seen so far. PT is an abbreviation for Price Target and as a point of reference the stock is in the $11-12 range right now. These are in the order that I received them and the bolding and comments marked (editorial) are my own. I've put the analysts into three buckets based on their ratings - Bullish, Neutral, Bearish.

Bullish

• Marianne Wolk - Susquehanna (say that three times fast) - $18PT (Editorial: Marianne had lots of PayPal that I didn't put here as we focus on the marketplace biz.)
  • We believe there is value to the core eBay franchise, which has more than 86.3 mln active worldwide users as of 4Q08 and ~17-18% domestic e-commerce share in 4Q08. Many of these users are loyal buyers/sellers, and with stronger company actions and a more benign economic backdrop, we believe usage and monetization levels could improve in time (albeit our estimates assume this is not until 2010).
  • The major change we heard at the analyst day is that the company expects to incorporate more classified listings and advertising with the search results for users. (Editorial - more advertising - GREAT!)
• Heath Terry - FBR - OUTPERFORM - $16PT
  • While there is significant execution risk as the company attempts to create a "New eBay", at less than 6x forward EBITDA we believe investors are being paid to take that risk. We believe the stock represents an attractive long-term risk/reward, as our $16 price target equates to a 6x EV/EBITDA multiple.

Neutral-ish (is that a word?)

• Spencer Wang - Credit Suisse- PT - $15 - Neutral
  • Overall, we are encouraged by management’s initiatives to maintain its role as a key connection between buyers and sellers of goods, to extend PayPal’s scale, to “transform” Marketplaces, and to accelerate growth at Skype.
• Gene Munster - Piper - Neutral - no PT
  • We are incrementally more positive on eBay, given potential changes to the marketplace platform, which could come late in 2009, according to the company. We remain Neutral on EBAY shares, as ultimately, we need to see changes to the platform that improve the user experience and arrest market share losses.
• Collin Sebastian - Lazard - HOLD -
  • 2011 targets provide an optimistic scenario assuming a rebounding economy. Highlighting the Analyst Day, management provided a range of 2011 revenue and margin targets, under the assumption that the economy rebounds next year and that growth in PayPal, Skype, and marketing services continues to offset the declining auction marketplace. In the near term we expect 2009 to be another challenging year for eBay in the midst of transition in a weak economy
• Imran Kahn - Neutral -
  • ...we continue to be cautious on the story, as many of the announced changes may not fully materialize until 2011. Additionally, we believe competition from Amazon (AMZN) and other online commerce sites could create further risks to the company’s financial targets.
• Jim Friedland - Cowen - Neutral -
  • (1) The company is actively addressing the challenges in its core marketplaces business, but we think its three-year revenue and margin projections are too high; (2) PayPal is well positioned to demonstrate continued growth; (3) Skype is for sale in our view; and (4) a dividend is unlikely and management seems to be unwilling to repatriate its cash position for a buyback due to tax implications.
  • We think competition from alternative channels, such as Amazon and Google Search, is a serious threat to the marketplaces business. Amazon and Google (GOOG) offer attractive seller pricing (it is free to upload inventory to Google's product search database). Further, we believe the superior buying experience on Amazon and search experience on Google reduces the value of the eBay platform for buyers and sellers. Even though eBay is dedicating significant resources to enhancing search, improving the user interface, and other buyer/seller features, we believe it will be difficult for the company to catch up to Amazon.
• Mary Meeker - Morgan Stanley - equal-weight
  
  • eBay noted 2009 marketplace GMV should grow slower than market (we assume -12% Y/Y); 2010 should grow with market (we assume +8% Y/Y) while 2011 should grow faster than market (we assume only +4% Y/Y).
• Derek Brown - Cantor - HOLD - $13 PT
  
  • On the one hand, we were very impressed by managment, most (if not all) of whom were presenting at his/her first Investor Day; its willingness to admit past errors/oversights in strategy, product development, technology and customer relations; and, its unyielding commitment to drive "foundational" change within the core of eBay (both its culture and Marketplace franchise); on the other, it seems clear to us that eBay's revitalization efforts remain very much a work in progress and we think hopes for a healthy recovery by 2011 may be premature.
• Ben Schachter - UBS - $14 PT, Neutral
  
  • Management expects the Marketplaces division to grow slower than the market in 2009, with the market in 2010 and outpace the market in 2011. EBAY expects to bring large scale changes to its Marketplaces division that will take time to implement. The company is attempting to improve its user experience by expanding efforts to include more liquidation/out-of-season products and by overhauling its search function to bring more relevant searches to the forefront (highlighting inventory from across the EBAY ecosystem). Even if we assume they can execute on this strategy and stabilize the marketplace, it will take time and guidance does not imply real growth until 2011. We continue to remain cautious on management’s ability to execute and expect the stock to reflect more near-term execution than promises the company makes about 2011.
• James Mitchell - Goldman (Golden Slacks as Cramer says) - $14 PT - Neutral
  • We view management’s marketplace objective of focusing on the “secondary” (used/discontinued/discounted/end-of-season items) rather than “primary” (new/in-season items) category as a rational strategy for minimizing head-to-head conflict with Amazon. However, “secondary” may account for a declining portion of overall e-commerce over time, potentially condemning eBay’s marketplace to perpetually under-grow the e-commerce market.
• Christa Quarles - TWP - Market Weight
  
  • We believe eBay's strategy makes sense and the actions the company have taken thus far (changing management, putting technology at the centerpiece, strategically cutting costs and reinvesting in growth) are in the right direction. However, it's still unclear if core marketplace will look as management defines it in 2011 (e.g. the margins may be 25% not 35-45%) and it may take much more time to fix, particularly if the macroeconomic environment stays weak. We remain on the sidelines, but could start to see some value investors with long time horizons starting to get more interested in the story.

Bearish

• Justin Post - Merrill Lynch - PT - $13 - UNDERPERFORM
  • Upbeat presentation, but one message from the day was that eBay was still early in their turnaround and that things would get worse before they would get better.
• Jeetil Patel - SELL - $11 PT
  
  • While filled with long- term optimism, we thought the analyst event lacked near-term reality with respect to the current deteriorating fundamentals. In light of no near-term (2009) guidance, anticipate acceleration in growth, competitive pressures and economic backdrop, we think it's difficult to put much credibility into the 3-year plan. We think investors should gauge eBay against near-term performance.
  • Near–term, the marketplace business is expected to underperform industry growth trends before flattening out next year and reaccelerating in 2011 – representing an optimistic view from eBay, we think . Clearly, this business represents the cash cow, and risk remains on declining demand, high seller commissions and lack of interface changes. We think the Skype unit is actually performing well, and management should hold on to this business model.
    
  • The problem in the core lies with lack of demand, seller fees running too high and an e-commerce interface that is inconsistent with the industry norm (think product orientation, not listings metaphor). It is quite difficult for sellers to generate cash flows if they have to discount pricing (relative to other sites and direct) and maintain in-line to above-market commissions on selling on the platform, especially with weakening demand.

Disclosure: Author is long Google and Amazon

Comments

[Bob C:]

In January, Donahoe would not even predict Q1 for '09, and now they predict 2 years down the road?

Just close you eyes, don't look at your portfolio until 2011! Trust us!

I predict that things will get worse before they worsen,
and another mass exodus of sellers, starting yesterday.

Mar 12 01:38 PM

[Bob C:]

In other news, it looks like Google will kill Skype with its own phone service, for free.

www.thestreet.com/_yah...

eBay will now have a hard time trying to sell Skype, and will probably have to eat it.
I hope they choke on it.

Mar 12 01:57 PM

[old eBay se...:]

Mr. Patel has always been correct on eBay and he sees what is going on. The fees are way to high to be able to work in this type of economy.

Being a 10 year member and a Power Seller for 5 on eBay we have a good track record. We had to cut our fees to 50% of what we normally paid eBay each month but so far our sales are down 60% so we are going to have to cut back even more. If the trend that we are seeing is reflected in other bigger sellers it is not looking good for eBay at all.

Sales in the other venues we use are only down 20% to 30% and we are focusing more of our energies towards those areas which also leaves us more profit. We have been using eBay only as a place to attract customers which we lead to our other places. I am sure that many of the others sellers on eBay are doing the same thing.

The original dynamics of eBay are long gone and it is a dying entity. The management knows this and that is why the big emphasis was on PayPal and even Skype. The sad thing is that they also were the ones that caused these dynamics to disappear.

It was a good run and a lot of fun but we should all start preparing our eulogies for this company unless something can be done to give rebirth to it.

Bill

Mar 12 02:14 PM

[Marcap:]

I think this story on TheStreet also sums up eBay pretty well:

eBay Stock Rises on Rainbows and Unicorns

www.thestreet.com/_yah...

Oh well...I guess betting on "Unicorns" is about all that Donahoe has left to bet on.


On Mar 12 01:57 PM Bob C wrote:

> In other news, it looks like Google will kill Skype with its own
> phone service, for free.
>
> www.thestreet.com/_yah...;cm_cat=FREE&c...
>
>
> eBay will now have a hard time trying to sell Skype, and will probably
> have to eat it.
> I hope they choke on it.

Mar 12 02:22 PM

[Tippie:]

Ebay needs to change their name and define what in the hell they really stand for these days! eBay is now going into the liquidation business. They are plugging Skype and Paypal as their real money makers! eBay themselves don't even know what in the hell they are doing besides buying up a bunch of companies that have nothing to do with Auctions. eBay has ruined eBay. Their stock should be worth $100.00 a share instead of $10.00 bucks and sinking. Amazon is king because they have a positive direction. eBay does not! eBay now states that they do not sell retail. We are not a retailer they stated! We sell liquidated items cheap! Lol. That crap should make them lots of money down the road! Clothes that are 20 years old, out of style, being liquidated for the 15th time, yeah right! Stupid fools!

Mar 12 06:28 PM

[Tony P.:]

Analysts:

"In closing, let me echo the remarks of my friend and colleague, Stephanie Tilenius, our GM of North America, who said at the Channel Advisor conference earlier this month that we are moving towards a more retail-like experience and that you will not recognize eBay this time next year."

Those words were spoken by Lorrie Norrington, President of eBay Global Marketplace Operations, to a group of PESA (professional ebay sellers assoc.) sellers, on April 23, 2008. She was referring to Stephanie Tilenius' remarks on April 2, 2008.

We're almost at that "one year" mark, so a couple of questions come to mind:

How's that more retail-like experience working out for you? Not so good, huh? All of the ebay peeps now claim that they NEVER said they wanted retail.

How about that "unrecognizable" aspect.. disrupted enough yet? No, still not finished? I must have read more into those statements ebay made last year. I thought "completion" by this year, but should have thought FUBAR. Silly me.

Analysts... what are we gonna do with you?! Are you so blind that you can't see a bait-and-switch theme?

Mar 12 08:43 PM

[Tony P.:]

Hiya Tippie!

For those folks that don't know, when Tippie first posted here (long ago!), she/he would give us "complainers" a lot of grief!

Over time, even Tippie came to understand that we weren't just complaining because we like to do that - we complain because we know in our hearts just how much the ebay brand has been stomped to death by its mgmt.

And Tippie is 100% correct - ebay's stock should be at $100 per. It would be too, if not for the inept mgmt.

That's what happens when bean-counters are put in charge of a sales-oriented company. I thought we all learned that lesson back in the days of "efficiency experts", RIF and other stupid things.

Mar 12 08:55 PM

[dlweld:]

Yep, good points on ebay predicting 3 years out quite happily, but no ideas on the next year or so, and analysts' concerns with actual execution. You'd think that good management could have grown the company while transforming it, instead they've managed to build up a negative branding to die for. Folks now, far from being loyal, want ebay to fail - takes real genius to create that.
PAYPAL is the one bright spot in Ebay's self generated panoply of disasters, but I'm pretty sure PAYPAL has done so well because Donahoe and company have been focussing on ruining Ebay - that jobs pretty well completed now, so onto other areas! Great! The black thumbs have arrived - I suspect we'll see a ton of well-meant but misguided decisions on PAYPAL and it'll join EBAY in its dive. No number of colorful PowerPoint ballons will be able to keep it up.

Mar 13 12:08 AM

[Allan kraig:]

Look here is a BIG THING that a lot of these so called SHARP investors haven't connected the dots on YET!!! .. JD's main job description a while back before coming to eBay was to break up Great BIG corperations & selling the iddy biddy pieces off or spinning off the pieces to the highest bidders .. (humm?? could this be the reason the big puff job on PreyPal wed?).. Also all the years previously you hardly heard squat about Skype (eBay's red headed step child), but now every other word out of JD's mouth is about SKYPE & its recent progress, so it is being advertised in much the same manor that a snake oil salesman would present himself in the middle of a small town square (step right on up here lad, This elixir cures everything,,, well sept stupidity) .. I honestly think it would be interesting to actually see how much cash the Meg actually got into her pocket from the purchase of this company at its way over bloated purchase price way back in the day .. I think even a fair detective could connect the dots and find that she may have made a bit on both sides of the fence in that acquisition, especially when you relize that skype still isn't worth today of what eBay paid for it when they bought it way back then .. Either the guy who sold it to them is the best snake oil salesman there ever was or there was some self serving reason to pay that much for such a new loosly formed business ..

Anyways, don't be too surprised when you see eBay, Paypal & skype going 3 different directions soon as John Dillenger Donohoe carves it up for sale to sell the pieces off to the highest bidder .. Snippers get your button pushing fingers ready LOL .. Allan Kraig

Mar 13 04:26 AM

[arlin:]

This is a quote from Ebay mgmnt"we are no longer an auction company"..enough said.

Mar 13 08:54 AM

[boardwalk:]

One big problem for Ebay is their strategy employed for Search. Since the search is dependant on DSR ratings and other factors it is skued by the seller. People pay to have their items listed, but buyers may have difficulty in finding the items if the DSR ratings are slightly low. The big problem here is Ebay is telling us that they are always looking to improve the buyer experience in finding what they are looking for. This is not the case. The buyer needs to be technical savy in order to click all the right buttons in order to truly search Ebay for goods wanted. If they do not know how to do this, their search comes up short and they will not find the goods and will search elsewhere on other sites. In the meantime the goods might be available on Ebay, but due to seller DSR rating just not show up. This thinking is a major flaw. I understand why Ebay implemented it (punish poor performance), but it does not make for a great Ebay buying experience.

Mar 13 09:38 AM

[fatseal:]

I don't shop at ebay anymore, because I can't find what I want at ebay anymore. I used to, and I would spend hours searching (back when search worked!!)for cool things that I didn't need, but just had to have! Now I can search any other website and find cooler stuff, some new, some used, some vintage and get it cheaper as well. I bought everything from kids clothes to china on ebay, and loved it, but there are not so many bargains to be found anymore, and the sellers I used to buy from are gone or have a lot less stuff. So I don't shop there anymore, I can't find "IT" on ebay anymore. They've improved the site to death!

Mar 13 09:43 AM

[coyotebait:]

eBAY-haters UNITED!

It's tiresome to keep reading these ridiculously one-sided SLANTED OPINIONS, that refuse to deal with the numbers (aka VALUATION).

YADA, yada, yada ...YAWN...

CHOMP,

^__^

..

Mar 13 11:30 AM

[Bob C:]

Dear Mr or Miss coyotebait,

EHU posters know eBay from the inside out.
Do you?

AND, at least we are not hubristic.

Mar 13 02:22 PM

[Philip Cohen:]

I am predominantly a buyer. I receive daily email notices from eBay that list the newly listed items in the category searches that interest me. This email advice lists up to 12 new items. If it is indicated that there are more than 12 newly listed items then to view them one has to click on the “Find matching items [Show]” link. Unfortunately, this action results in a showing of the total of the items in this category, not simply the remainder of, or only, the newly listed items.

I don’t want to, every day, again look at the total listing and so I don’t bother looking any further which means that I don’t see any of the new items that don’t make it onto the email advice—I just can’t be bothered anymore.

Yes, I understand that I could click on “[Show]” for the whole listing and then manually further refine the search to display only those items listed since the previous “x” time, but I am not interested in doing that extra work for each of my many favorite searches. And, anyway, is it not Captain Donahoe’s constant theme that of “improving the user experience” on eBay.

Now, it may well be that my form of logic is totally flawed (certainly it is different to that used by eBay) but I would have thought that eBay would have by now recognized that any buyer in the situation described would most likely want to see only the newly listed items and not the whole list of the possibly very many items previously listed at any time up to 10 days prior and which have most probably been seen before. Logical? Not to eBay, apparently.

Items listed since the previous email notice are already flagged as such and therefore it would be a simple programming exercise to change the link “Find matching items: [Show]” to “Find matching NEW items: [Show]”; then I might start looking at the remainder of the newly listed items; I might even buy something.

I have several times over the past couple of years suggested this change to eBay, with no result (and indeed on one occasion with a quite negative response); in the meantime they carry on with superficial, some might say totally pointless, changes to the buyer interface.

When will this gang of amateur marketers learn that, before they have perfected the “function” of the interface, it is pointless for them to be wasting programming time superficially fiddling with the “form” of same?

Clearly, we have an eBay management team that has no idea of what they are doing; certainly no idea of the wants of the users on which this business is (was?) based. And, even if this management (still) thinks that it can grow this business by radically changing direction periodically, and treating their legacy sellers as though they have “the black plague”, what about at least looking after the buyers? Or is eBay planning to get along without buyers too?

And then, of course, there is my other pet hate, eBay’s outrageously disingenuous across-the-board application of “hidden bidders”, a detailed criticism of which appears at
www.auctionbytes.com/f...

Mar 13 02:37 PM

[coyotebait:]

Dear Mr. or Miss Bob C,

There is nothing more "hubristic" than hate.

It takes a self-destructive moron to hate.

Good luck.

CHOMPS,

^__^

..

Mar 13 07:42 PM

[Tony P.:]

I will make the safest bet that I ever could. And, I'll put all of my resources on the line in doing so.

I will bet that not a single person posting on this forum, or any forum for that matter, HATES ebay.

Donahoe, et al ??? That's a different story.

Therein lies the basic truth. We LOVE ebay and HATE its destruction.

Which means: Anyone that constantly finds fault with our viewpoints, must HATE ebay and LOVE its destructors.

Mar 13 08:26 PM

[coyotebait:]

Tony moroni,

What are you smoking?

CHOMPS,

^__^

..

Mar 14 12:24 PM

[Bob C:]

coyotebait,
Your insults sound trite and childish.
Surely you can do better than "moron" and "what are you smoking?"

Here's back at ya:

When you start to sound reasonable, it's time to up your medication.

I see you've set aside this special time to humiliate yourself in public.

I don't know what your problem is, but I'll bet it's hard to pronounce.

I like you. You remind me of when I was young and stupid.

You are validating my inherent mistrust of strangers.

I'll try being nicer if you'll try being smarter.

It sounds like English, but I can't understand a word you're saying.

I can see your point, but I still think you're full of it.

Any connection between your reality and mine is purely coincidental.

I'm all refreshed and challenged by your unique point of view.

The fact that no one understands you doesn't mean you're an artist.

I will always cherish the initial misconceptions I had about you.

I'm not being rude. You're just insignificant.



/ /| \
| <'/ |
\/ ( /
/_ |-'
| _\
\___>\

Mar 14 06:18 PM

[redbaron:]

We are sellers with the antique and collectible merchandise that buyers want to buy, but we can sell it for more at B&M outlets than we can on eBay, and also avoid the high eBay costs. Ebay management has killed our incentive to want to list good old stuff there, so we will continue to do less of this as we go forward. Only a change in management would provide the needed incentive to re-evaluate our thinking. We see no other way for eBay to reinvent itself back to where it was just a year or so ago.

It is so sad to see a company spend a dozen years, developing and perfecting the auction format, becoming the best on-line in this end of the business, and then throw it all away with a new team with no knowledge of past developments and realities. Ebay solved many of these same problems in the past, but current management is too bull-headed to admit it's mistakes and return to a business model that we all knows works. From that perspective, we can see no other way to solve this than a new management team. Less than that will only prolong the problem, and make meaningful recovery less likely. IMHO

Mar 31 09:27 AM