eBay Watch: Skype's 12m Mark, eBay Sellers Boycott, P/E Compression

Skype Reaches 12 Million Concurrent Users

Despite the long weekend in the United States, Skype still managed to break through the 12 million concurrent user mark. This new record comes only 42 days after breaking the 11 million concurrent user mark and represents another month of accelerating growth. While Q4 and Q1 have always been strong quarters for Skype, this latest milestone is further proof the 4.5 year old company is still in a period of hypergrowth and still the runaway leader in VOIP communication.

eBay Sellers' Boycott

With eBay's (EBAY) new fee schedule coming into effect on Wednesday, there is at least one group of sellers calling for a week of sales boycott as a way of voicing their discontent. After all, even though the fee changes will result in lower average fees for eBay sellers as a whole, they do imply a fee increase for a small proportion of sellers. In fact, Steve Grossberg, President of Internet Merchants Association, claims that as many as 1/3rd of sellers could face a fee increase (although this estimate precedes eBay's readjustment of fees in the media category, which was the hardest hit by the changes).

With the success of last week's 20 cent promotion boosting listings until February 20th and the new fee schedule thereafter, it will be difficult to determine the effect, if any, of a seller boycott. If past attempts are any indication however, it will be a moot point.

Six Years of P/E Compression

click to enlarge

This is a spectacular illustration of the P/E compression that eBay has experienced over the past six years. The chart shows share price to trailing twelve month [TTM] earnings for each quarter since Q1 2002. We can see that on both a GAAP and Non-GAAP basis, eBay's trailing P/E has come down from triple digits to a record low of around 20x today (and into the teens if we were to take forward 2008 earnings).

P/E ratio compression is expected as high growth companies mature and earnings growth comes down. In eBay's case, the compression has already led to a P/E ratio that is approximately on par with the much lower-growth broader market average. To the extent further P/E compression is limited and eBay continues to grow earnings faster than the broader market (not a very high bar), we can expect attractive share price performance going forward.

Comments

[Donald E. L. Johnson]

Good comments. Your chart shows that when a growth company's earnings growth rate fall, so does it's PE. This is why calling a stock cheap because its PE is down is so misleading. PEs are falling on many stocks because their earnings growth is expected or feared to be in for a slowdown, if not worse. eBay is a retail stock, and retailers are in the dumps. Until consumer spending shows signs of recovery, eBay and most retail stocks will be relatively weak, don't you think?