Seeking Alpha

Alexander Grano's  Instablog

Alexander Grano
Send Message
I am a intermediate investor with 3 years of trading experience with both Stocks and Mutual Funds. I primarily focus on long term investments that have strong potential to grow overtime.
  • Facebook And EBay: 2 Online Kings Compared 0 comments
    Mar 20, 2013 6:45 PM | about stocks: FB, EBAY

    Facebook Inc. (FB) and eBay Inc. (EBAY) are two leading online companies, with strong growth, receiving positive analysts' calls recently. Both stocks will be analyzed fundamentally and technically in this article. Investing strategies will also be reviewed.

    Facebook Inc.

    FB was up 0.23% and closed at $26.55 on March 19, 2013. FB had been trading in the range of $17.55-$45 in the past 52 weeks. FB has a market cap of $63.25B.

    On March 19, 2013, JMP Securities initiated coverage on FB with a market perform rating. Analysts currently have a mean target price of $33.44 and a median target price of $34.00, suggesting 25.95%-28.06 upside potential. Analysts, on average, are estimating an EPS of $0.13 with revenue of $1.45B for the current quarter ending in March 2013. For 2013, analysts are predicting an EPS of $0.57 with revenue of $6.66B, which is 30.90% higher than 2012.

    Facebook on Tuesday announced "Lookalike Audiences," a new feature for advertisers. The company claims the new targeting technique offers lower cost per checkout, lower cost per acquisition, larger purchase size, as well as faster and increased return on investment.

    Fundamentally, despite the recent pullback, FB's valuation remains unreasonably high with P/E of 2655 and P/FCF of 167.76. However, if FB can achieve its estimated long-term annual EPS growth of 29.04% for the next 5 years, the valuation will become more justified. On the positive end, FB has a total cash of $9.63B with a total debt of $2.36B. FB generates a positive operating cash flow of $1.61B with a levered free cash flow of $412.38M.

    Technically, the MACD (12, 26, 9) is showing a slightly bearish trend, and the MACD difference continues to diverge. The momentum indicator, RSI (14), is indicating a bearish lean at 39.00. FB is currently trading below its 50-day MA of $28.86 and above its 200-day MA of $25.47, as seen from the chart below.

    (click to enlarge)

    Source: StockCharts.com

    How to Invest

    FB is not for conservative investors at this moment, and it is hard to evaluate FB from the valuation perspective. However, FB remains one of the best bet for social media trend. For bullish investors, a credit put option spread of June 22, 2013 $20/$22 put can be reviewed, which will allow investors to gain some upside credit premium or to acquire FB shares at a price below $22 upon options expiration. Investors can also review the following ETFs to gain exposure to FB:

    • Social Media Index ETF (SOCL), 14.30% weighting
    • SPDR MS Technology (MTK), 3.20% weighting
    • Nasdaq-100 Equal Weighted Index Shares (QQQE), 1.01% weighting

    eBay Inc.

    EBAY was up 1.97% and closed at $51.10 on March 19, 2013. EBAY had been trading in the range of $35.31-$57.26 in the past 52 weeks. EBAY has a market cap of $66.25B with a beta of 1.43.

    EBAY had received multiple upgrades recently. On March 19, 2013, JMP Securities initiated coverage on EBAY with a market outperform rating and a price target of $67.00. On the same day, Cantor Fitzgeraldupgraded EBAY from hold to buy with a price target of $56.00 saying the risk/reward is attractive following a 13% pullback from the multi-year high set back in February. The analyst Youssef Squali said,

    We believe that eBay's fundamentals are strong, with Marketplaces' GMV growing at least in-line with ecommerce; PayPal TPV growing mid-to-high teens; and margins showing modest improvement over the next 2-3 years, even as management continues to invest ahead of growth (point-of-sale, mobile, etc.).

    Analysts currently have a mean target price of $60.29 and a median target price of $62.00 for EBAY, suggesting 17.98%-21.33% upside potential. Analysts, on average, are estimating an EPS of $0.62 with revenue of $3.76B for the current quarter ending in March 2013. For 2013, analyst are projecting an EPS of $2.73 with revenue of $16.34B, which is 16.10% higher than 2012.

    As reported, EBAY is launching a new fee structure and incentives for sellers to remain the most competitive commerce platform next to e-commerce marketplace Amazon (AMZN). It is the first time that eBay is launching free listings for both non-stores and stores on the platform, as well as simpler pricing. The fight between EBAY and AMZN is intensifying as EBAY is offering incentives to some of Amazon's merchants to make the switch.

    Fundamentally, there are a few positive factors for EBAY:

    • Higher revenue growth (3-year average) of 17.3 (vs. the industry average of 7.5)
    • Higher operating margin of 20.5% and net margin of 18.5% (vs. the industry averages of 4.4% and 4.2%)
    • Lower debt/equity of 0.2 (vs. the average of 0.3)
    • Lower P/E of 25.2 and P/B of 3.1 (vs. the industry averages of 57.5 and 4.8)
    • EBAY has a total cash of $9.41B and a total debt of $4.52B
    • EBAY generates an operating cash flow of $3.84B with a levered free cash flow of $1.30B

    Technically, the MACD (12, 26, 9) indicator is showing a bearish trend. RSI (14) is picking up but still indicating a selling momentum at 37.57. EBAY is currently trading between its 50-day MA of $54.40 and 200-day MA of $48.60, as seen from the chart below.

    (click to enlarge)

    Source: StockCharts.com

    How to Invest

    Unlike FB, EBAY's valuation can be better analyzed. With expected14.63% long-term EPS growth for the next 5 years, there is more upside for EBAY. With a healthy balance sheet and strong cash flow, along with a wide economic moat, EBAY remains a long-term buy. For bullish investors, a credit put option spread of June 22, 2013 $45/$50 put can be reviewed. Investors can also review the following ETFs to gain exposure to EBAY:

    • Nasdaq Internet Portfolio (PNQI), 7.55% weighting
    • DJ Internet Index Fund (FDN), 6.45% weighting
    • Dow Jones U.S. Consumer Index Fund (IYC), 3.13% weighting

    Note: All prices are quoted from the closing of March 19, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

    Disclosure: I am long FB.

    Themes: Social Media Stocks: FB, EBAY
Back To Alexander Grano's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

  • Not buying COST. To much risk if the sales numbers aren't strong
    Jul 19, 2012
  • Johnson and Johnson eps is slightly lower, however i would still consider this stock a good longterm holding. I am rating it Strong Buy
    Jul 17, 2012
More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.