Bear Stearns Upgrades eBay
Bear Stearns analyst Robert Peck Thursday upgraded eBay (NASDAQ:EBAY) to Outperform from Peer perform, saying investor concerns over competition from the likes of Amazon (NASDAQ:AMZN) are overdone. He provides a $36 price target for 2008. "At historical valuation lows, we believe that eBay's issues have been overly accounted for and that the investor pendulum has swung too far toward fear," Peck said. "We believe that there are several catalysts to drive the stock in the near term, including a new fee structure for sellers next week," he adds.
Peck downgraded eBay only two months ago. Usually I am cynical of such short-term changes of heart without even a new financial release in between. But given Peck's argument is mostly about valuation, and eBay has shed 20% since his last report, I'll give him the benefit of the doubt.
For now, you can download Peck's report here.
This upgrade reminded me of my 'Even Bears are Bulls' theme. Having read Peck's work, he is actually a bear at heart (unless he is being ultra conservative just to make his point).
For example, here are some of the more bearish assumptions embedded in Peck's sum-of-the-parts.
Skype is worth $350-$500 million in 2009 (which means it's worth less than that today). In Peck's own words, "essentially negligible". That would make Skype worth less than 1x revenue. I think that's the most bearish view I have seen yet.
PayPal is valued at the same 12-13x EBITDA multiple as US Marketplaces (actually less, since Peck values shopping.com separately with a higher multiple). That makes PayPal worth just $7 billion, in 2009 - when others think its worth $15-$20 billion, today!
eBay's classifieds network is lost inside Marketplaces and therefore essentially worthless since it is valued at Marketplace multiples. It's hard to value eBay classifieds, given lack of visibility and their size, but it takes a bear to write-off several billion page views.
No mention of eBay's stakes in Craigslist or Mercadolibre. I don't know if that's being a bear or simply an oversight (and a big one). Either way, several billion dollars of value is overlooked.
Despite these, he still calls eBay a Buy with a $36 price target in 2008. As I said last time, you know the valuation is out of whack when even the bears are bulls.
Best-Match Worries Me
eBay started testing Best-Match as the default search results over 2 months ago in the UK. I already expressed my concern then, but gave eBay the benefit of the doubt and admitted testing was the only way to really see if Best-Match improved finding, conversions, and ultimately GMV.
Now, with Best-Match officially being extended to a few large categories in the U.S., one would assume the initial results were encouraging. In theory, this should be excellent news as a first sign the new finding technology improves the marketplace dynamics.
But given the public outcry against Best-Match, is it possible that eBay is rolling out a feature that actually damages the marketplace experience? I'm not into conspiracy theories so I don't believe eBay would ever, knowingly, do this. But I would ask that eBay be very very careful in trying to fix a feature which many have argued was never broken in the first place.