Seeking Alpha
Stock and Options Newsletter, Teaches Hedging Strategies, Smart Portfolio Management
Profile| Send Message|
( followers)  
I think it is a week or two too early to make a big buy on eBay (NASDAQ:EBAY) but it’s killing me to wait. The short-term chart looks weak but they are very long-term oversold and could move higher any time.

Looking at this month’s action though, one could conclude they were being held up, not down, buy a buyer at the $28 level.

Is eBay worth 40 times earnings? Apparently it depends on the time of year as the stock often does well into the holidays, then sheds half the run-up or more in the Spring. The only Q3 that this stock went down was 2000, and everyone went down that quarter.

I’ll tell you what’s wrong with eBay - runaway SG&A expenses. They’ve been tracking up on a 1:1 basis with sales for years and now take up close to $2Bn a year. I thought I was buying a database company -- why are we running retail-like numbers? The cost of revenue also does not get much bang for the buck but has also started running up a bit.

Compare that to a well-run retail operation like Target (NYSE:TGT) and you will see what I mean. On a 10% increase in revenues since 2004, Target’s cost of revenue rose 1:1 but SG&A went up less than 4%, dropping an extra $1Bn to the bottom line.

I can’t think of a single way to say this without coming across as sexist but Meg needs to stop mothering her employees and start firing a few people! I applaud the price increase, heck I just picked the stock as a buy recently, but I am certain there are many CEOs who could knock a half a billion off the nearly $3Bn in sales and operating expenses. Raising revenues is nice, but not when it’s a trade-off to increasing efficiency.

It takes 11,600 eBay employees to make $5.2Bn in sales while 5,700 Googlinians (NASDAQ:GOOG) rack up $8.2Bn in sales. Amazon (NASDAQ:AMZN) moves $9Bn in actual (not virtual) product with just 12,000 employees. That means that for each dollar in revenue an eBay employee oversees as clicks move through their computers, an Amazon employee generates $1.60 while they order the item, stock the item, package the item, ship and bill for the item.

eBay starts out with a bang, with a Gross Margin of 81% vs 59% for mighty Google but, when all is said and done, the Operating Margin comes in at just 26%, far behind Google’s 34%. Someone, anyone, help these guys out! I’ll do it myself if I have to! Again, I love this company; they earned their monopoly by being the best but boy could they be doing better.

Source: eBay: Runaway SG&A Expenses Dragging Down The Stock