Piper: eBay Beginning to Turn Corner

Piper Jaffray is increasing its estimates for eBay (EBAY) primarily due to better performance of the core eBay Marketplace in Q1. They are also increasing estimates for PayPal and Skype.

For Q1, they move from earnings of $2,058M and $0.40 to $2,164M and $0.42. The Firm notes the earnings consensus is $2,064M and $0.39 and guidance is $2-2.05M and $0.37-0.39. For 2008, they move from $8.6B and $1.67 EPS to $9.1B and $1.75. For 2009, they move from $9.6B and $1.88 to $10.5B and $2.00.

The Firm believes solid Q1 upside, increased guidance and improving metrics (listings and GMV acceleration) should serve as catalyst for shares. While 2008 is still a transition year for eBay as it undertakes a number of initiatives to reaccelerate core eBay growth, Piper believes eBay is beginning to turn the corner and they believe shares offer an attractive entry point at 18x/16x 2008/2009 PF EPS vs. 15-20% estimated long-term EPS growth.

Piper is also increasing its price target from $34 (18x '09 PF EPS) to $40 (20x '09 PF EPS) due to higher estimates and a slightly higher multiple due to the improved fundamental outlook.

Notablecalls: This is a pretty meaningful call by Piper's Aaron Kessler on many counts.

- First, he is upping Piper's Market Place estimates which is somewhat of a surprise (stronger listing + FX)

- Second, payments' revised estimates are upped by quite a bit. This is mostly due to increased Market Place revenues.

- Third, Skype estimates are upped nicely. I continue to view Skype as an interesting call option as there have been rumors of Google (GOOG) being interested in buying Skype. Chatter indicates Google is willing to pay up to $6B for Skype, which is twice as much as eBay paid for the company just two years ago.

eBay has found zilch ways to integrate Skype into their biz model and selling the darn thing for a $3b profit would be awesome.

- Lastly, Piper is upping its target to $40 saying it believes eBay is beginning to turn the corner. Bold statement.

Anyway, I think eBay is a buy here given the upside potential and possible catalysts.

Comments

[ramankandola]

it's time for e bay to show ... some higher price actions. I heard Skype is up for sale, and GOOG is watching it carefully !

[bluesmoke]

Ebay is an interesting animal. I have sold tons of stuff on Ebay and made some good money. They constantly innovate - I notice it the most in the "Sell an Item" feature. Each time I try to sell something, it's kind of annoying to navigate something new. I still hate their "customer service", if you can call it that. It's more like "my way or the highway", especially if you violate some stupid rule. The Paypal fees are too high. And I guess lately there are some new fees as well. But in their defense, they seem to be listening on some level. And as long as they are the only game in town, I will continue to play. But I won't buy their stock because it just seems like a contradiction for me.

[DarkACE]

Apple should buy Skype. Combine the iPhone with Skype and you have the killer app of 2008!

[JohnPseudonym]

Ebay is a short at this point.

Major sellers are leaving as well as small ones. Ebay wants to become Amazon. Well, there are already 5 Amazons on the web.

High fees, setting the system up too far in favor of the buyer will result is less selection and higher prices. Hardly a formula for growth.

Sellers of all sizes are aggressively seeking alternatives. The most common is to open their own site and advertise through Yahoo and Google.

Just one example: Bargainland has stopped selling at ebay. They were a Platinum power seller with over 1 million feedbacks.

They now have their own and notified their 1.5 million customers of that fact. www.bargainland.net/

Ebay is betting the house on becoming Amazon...good luck!

[MrTim]

Sorry, but eBay is going in the wrong direction. They are alienating their sellers wth weekly policy changes. The latest debacle is forcing ALL sellers on their Australian site to accept Paypal and only Paypal. This has caused a HUGE uproar over there. They cannot continue to lose sellers and grow. They believe there is and endless well of sellers, but they are dead wrong. Many of the best eBay sellers have gone to Amazon. No listing fees and no hassles being the main reason for their departure. EBay is a poorly run company, period.

[AmesTiedeman]

eBay is a great business that is not going away.

[Patricia]

Ebay sellers are in turmoil! I will wait until May to see what Ebay will really be like for the rest of this year. In May, Ebay will institute the policies that sellers are outraged about the most. When sellers actually experience these changes firsthand then everyone will see whether or not Ebay is on the right path. I happen to think they are not on the right path and they have caused thousands of sellers to reduce their listings or leave altogether. I'm a 10 year seller on Ebay and I speak the truth. My listings are way way down from what they used to be. That's less revenue for Ebay - many sellers have gone on to other things - every sale they make off Ebay is a sale that does not go into Ebay's pocket. You people are being fooled by the number crunchers and the wall street guys who really aren't informed by the sellers in the trenches. The future for Ebay sellers is pretty dim and without them go the buyers and the revenue! Don't believe me? Just take a look at how many people are not selling on other online sites! All are "ebay refugees".

[Patricia]

Correction to my post above - should read:

"Just take a look at how many people are NOW selling on other online sites! All are "ebay refugees".

[JohnPseudonym]

ioffer.com is looking better all the time.

I have more listings there than at ebay.

There was a time when 100% of my sales came from ebay. Now it's down to 15%.

I drive every buyer I can to my business website. This is my 5th year of actively pushing my customers to my website and I'm very happy with the monthly sales.

All of those sales would have been through ebay had they not continuously implement "improvement"... that made selling there ever less appealing...

[Dinah Balk]

Didn't anyone tell the analysts that the only reason listings were up is because eBay keeps having listing sales every few weeks? Let's not forget the phony shopping.com listings either, lol.

[SandyBytes]

Dinah is right. EBay conveniently had a penny listing sale the last week of the first quarter to boost listing numbers. Looks like it worked, based on the fools buying up eBay's stock right now. Like they say, there's a sucker born every minute...

[AussieBattler]

They certainly have turned the corner , problem is the corner is on the edge of a cliff , down !
Ames , I see your one liner does not have any facts or reasons for the statement , haven't you been reading both the feebay forums (until the factual ones get pulled) and media communications to see what is really going on .
The systematic destruction, almost daily changing of rules , restrictive trade practices (The Aussies won't take Paypal only restrictions lightly). The ACCC (consumer affairs) here is being bombarded with complaints as it seems this is totally against free trade and restricts consumer choice and appears that it may be against our trading laws
Their legal eagles fooled them once before with Paypal only for digital goods in 2005.
Feebay is a greedy money grabbing with no loyalty to their customers , 800 Pound gorilla that will come unstuck in the auction world alternatives are snowballing their numbers at a fierce pace.

Greedbay is one gigantic propaganda machine that fooled both buyers and sellers for years , not any more the majority have now woken up seeing their business built uo over years destroyed because of greed , the only ones they are attempting to fool now is the stock holders. (fake listings and other devious means !)
Check Dina Balk and the previous post's she has made , they are spot on to what is really going on with these constant rule changes .

[bucketslogg]

I have to say that by and large investors talk like they are all elitist egg-heads, but all they rely on for their "research" is whatever Forbes or Deutsch or pick-a-broker-any-brok... is putting out and they're being fed a line of "IT" ~~~ may I recommend reading blogs, googling "I quit ebay" or "I hate ebay" or going to medved and tracking ebay's listings and sell through rates... there's an eye-ful for ya. Find out what the hottest auction sites are competing w/ebay and how's their traffic? Gauge it, track it.

No one's going to hand it to you on a silver tray... not Motley Fool, not no one. You consider ebay sellers to be whiners, but, have another think... we've been in the thick of it for years and we've stood a lot, but we have had all we can stands and we can't stands no more. Ebay is fond to show us where the door is, so, guess what? We are running for it.

As for you investors, you too quickly dismiss anything you don't care to see. Not a clever strategy. Here's a freebie... a certain international auction site added more than 400,000 listings to its 550,000 listings in one day... today !! Me thinks trouble's afoot for ebay. You know what else... paypal and ebay know exactly what's going to whom, when, where and how and they are not telling you... Why? Well, the stock would drop -that's why. Balls in your court... who'll be crying next?

[mrssh0ck]

Ebay sucks! they have ruined a great website for millions of people. I already started the May 1st. boycott early. I would rather have a garage sale and make less money, than work my a** off listing things on Ebay, only to give most of the money to Ebay and Paypal.