eBay Watch: StubHub Opportunity, Decreasing China Market Share, Analyst Updates

A number of key developments to note for eBay (EBAY) watchers:

Is Ticketmaster's Loss StubHub's Gain?

IAC's Ticketmaster has announced that after a year of negotiation, it is not likely to renew a long-term agreement with concert promoter Live Nation, when it expires in 2008. Live Nation is Ticketmaster's largest client and accounts for up to 20% of Ticketmaster's revenue.

Whether or not this represents an opportunity for StubHub is unclear. Recall that earlier this month, StubHub closed a deal with Major League Baseball making it an official source of tickets. Something similar may be possible with Live Nation. In any case, anything that helps unsettle Ticketmaster as the largest ticker seller in the U.S. has to be positive for StubHub.

And eBay's Loss is Taobao's Gain

Vnunet reports that turning eBay China into a local partnership with TOM Group has not helped to increase market share. Quite the contrary. eBay China's market share fell from 16% to 7% in the first six months of this year according to China-based consultancy Analysys International. As expected, China's Taobao picked up that gain and increased its share from 74% to 83%. Taobao is owned by Alibaba, China's largest online business auction firm.

Its interesting to see the "natural monopoly" that has played into eBay's favor in the US and Europe work against them in China. There is now little that eBay can do to compete in online auctions in China, one of the fastest growing online markets. In the minds of many investors, China is a complete write-off.

A few weeks ago, I suggested that eBay may try to go head-to-head with MercadoLibre in Latin America. If the China experience is any indication, eBay is much better of keeping, and even increasing, their minority stake in MercardoLibre. Which such a strong lead in a "winner take all" business, competing may not be an option.

Summary of this Week's Analyst Commentary

August 20: Merrill Lynch reiterate their Neutral rating with no target price provided. Merrill Lynch mention "listing trends in 3Q remain behind 2Q, with QTD total unadjusted listings down 11% y/y, versus down 6% in 2Q and our 3Q estimate for down 4%. There have been fewer listing promotions in 3Q07 versus last year, which we estimate has contributed about 200-300 bps to the q/q listings deceleration, but we are still not seeing a positive seller reaction to improving ASPs and conversion rates."

August 21: Deutsche Bank reiterate their Hold rating with a $33 target. Deutsche Bank mention that the "continued decline in eBay’s US and UK listings and weak German listings are exerting pressure on the company’s share price. eBay is finding it difficult to generate demand and is facing tough comps and seasonality in 3Q. A potential share buyback to lend near-term support to the company’s share price."

August 21: JPMorgan reiterate their Overweight rating with no target price provided. JPMorgan mention "eBay trades at a 21.3% discount to peers. On an EV/EBITDA basis, eBay trades at 17.0x F’07 estimates, vs. its peers at 21.6x. We believe better than expected revenue growth and improving margins will lead to multiple expansion and relative stock outperformance"

August 22: Lehman Brothers reiterate their Equalweight rating with a $33 target. Lehman Brothers mentions that "the performance of eBay’s PayPal Merchant Services continues to be robust, with an adoption of about 30 of the top 100 e-tailers" but that "there are concerns surrounding the impact of ASPs on future RPL growth and the new site initiatives."