Tony P.

Wal-Mart vs. eBay: Which is a Safer Stock to Own?

@eBay ++++

You are absolutely, 100% Correct about ebay's "numbers". Those numbers show a substantial profit, each and every Quarter - as far back as IPO. Yes, Yes, YES... you are correct.

It is also a fact that they have a huge on-hand cash asset. They would have even MORE cash, but they have used some of it to buy-back stock, which is a Plus towards shareholders, via the stock value.

Fat Cat Cash balance... beats its own and Street estimates... has a monopolistic business model... doesn't carry any actual inventory, yet monetizes a virtual inventory that places no financial burden upon ebay.


Where does all that money come from? Increased sales by its sellers and buyers? No, from increased fees. That is why there is concern for the lack of Growth within the site, for the last few years.

In the next few months, as more sellers remove their goods from the site, the revenue from those fees will decrease. To offset that decrease, ebay has instituted several new policies.

A new, higher 'backend' fee (Final Value Fee) for goods listed in the new 30-day Fixed Price format. Also, ebay changed the payment policy to essentially make all transactions payable via "Paypal Only".

I have no doubt that these policy changes will more than offset whatever financial loss ebay will feel as a result of sellers pulling their items, or their entire businesses, off ebay.


In the end, ebay will beat estimates, make a ton of cash and use it to, once again, offset the Options Bonuses paid to its higher-ups. Compare those Options to the Buyback, going back a few years. Start in the Skype, 2005 era.

Ebay will look like the Value stock and have a large cash reserve, but will still pay no dividends. Their cash reserve could be $100-trillion and it wouldn't matter one iota to a single stockholder, if ebay keeps it all for themselves.

If you hold the actual paper stock, turn it over and write on the backside, "$ 5,000,000,000" - that's as close as any stockholder will get to it.

Meanwhile, for those that actually use the site, what they see is this: More Cash to ebay, from fewer revenue sources (sellers). It's a game of diminishing returns. It can last, but just for a while. In ebay's case, due to their size, that time is measured in years, not months or days.

We have completed Year 2, as of this month, and are entering into Year 3.