eBay, Inc. (NASDAQ:EBAY)

CAPS Rating: 4 out of 5

Offering a forum for the buying and selling of stuff, eBay is the world’s largest online marketplace.

Recs

8
Player Avatar TMF1000 (99.77) Submitted: 6/27/2013 11:27:55 AM : Outperform Start Price: $24.35 EBAY Score: +50.69

I entered EBAY on CAPS on 9/16/2009: The price was $24.35 and the PE ratio was 20.29. The price is higher the valuation isn't as good, but I believe EBAY business is evolving and becoming much stronger a much more valuable business due to PayPal and GSI divisions. I will be keeping EBAY on CAPS and monitoring it over time.

1:2013 Notes:

Revenue for the quarter was $3.748 million up 14.3% from $3.277 billion last year. TTM revenue was $14.54 billion or $11.03 per share up from $12.38 billion or $9.46 per share. TTM revenue per share was up 16.6%.
PayPal currently has 128 million active accounts globally up 16% from last year. They added 5 million new active accounts during the quarter. PayPal is now accepted in nearly 20,000 retail locations across the U.S. Their partnership with Discover is expected to go live in Q2 which will activate millions of retailer locations by the end of the year. PayPal revenue for the quarter was $1.548 billion up 18.3% from last year from $1.309 billion. Paypal’s revenue represented 40% of Ebay’s total revenue. PayPal reported about $5.6 billion in revenue for 2012 or about 39.6% of total sales for Ebay. Paypal's TTM revenue was $5.839 billion or 40.16% of total sales.

Ebay’s marketplace business increased revenue by 13% to $2 billion. This part of their business gained 3.9 million active users during the quarter bringing them to a total of 116 million active users up 13% from last year. They reported revenue of $7.398 billion for fiscal 2012 or about 52.6% of total sales.

The Company’s GSI Commerce business reported $236 million in revenue for the first quarter. The platform generated $807 million in global eCommerce merchandise sales. GSI clients’ same store sales growth increased 16%. This segment reported $1.083 billion in sales for fiscal 2012.

Net income for the quarter was $677 million up 18.77% from $570. Net income per share was $0.51 up from $0.44. TTM net income per share with adjustments was $2.02 up 22.42% from $1.65 per share. Gross margins for the quarter were 69.26% while operating margins were 21.3%.

Cash flow for the quarter was $638 million up from $289 million. TTM cash flow was $2.93 billion or $2.22 per share up from $2.038 billion or $1.56 per share. TTM cash flow per share was up 42.3%.

Balance sheet and diluted share count:
The Company has $12.574 billion in cash and long-term investments and $4.5 billion in debt. They have improved the balance sheet from last year when they had $8.732 billion in cash and long-term investments and debt of $2.09 billion. Diluted shares outstanding increased to 1.319 billion from 1.308 billion reported last year.

A fun note: Amazon.com was founded in 1994 while EBAY was founded a year afterwards in 1995. They weren't obvious competitors back then, but they are now.

ThompsonFN estimates: June 26, 2013
2Q:2013 $0.64
3Q:2013 $0.65
Fiscal 2013 $2.75
Fiscal 2014 $3.23
Next report July 16, 2013

Guidance: The Company expects sales to range between $3.8 billion to $3.9 billion for the second quarter. They expect GAAP EPS to range between $0.61 to $0.63.

Event: March 28, 2011

Since the last time I wrote a page post, Ebay purchased GSI Commerce for $2.4 billion. GSI provide Internet retail services for over 180 retailers, such as Toys R US. EBAY would like to through GSI provide a platform for companies to sell their products and slow the migration of buyers to Amazon.com. When they were purchased their TTM revenue was $1.375 billion or $20.14 per share, but they weren't profitable. They produced $69.216 million or $1.01 per share in cash flow over the last 12 months before being acquired. They were cash flow positive excluding acquisitions and they made many acquisitions. The purchase price for GSI was $29.25 or 1.45 times sales and a cash flow yield of 3.5%.

Did the purchase make sense?

It was an excellent acquisition in my opinion. At the end of fiscal 2011, 13 GSI merchants were selling merchandise on EBAY. By the end of 2012, there were 17 GSI clients selling on Ebay. These sales are outside their officially ran website and they probably would not be selling on EBAY had it not been for the acquisition.

GSI has done well for their clients websites increasing their same store Internet sales by an average of 19%. At one time Amazon ran Target’s website, today Target runs their website. Unlike Toys R Us, Target is, I think running their own website – while Toy R Us who also left Amazon allows GSI to host their website. There are other neat synergies which I believe has helped GSI as well as EBAY. PayPal now represents more than 90% of GSI client volume. GSI is also using many of EBAY’s technologies such as EBAY Now, RedLaser and Paypal Media Network and Magento to build solutions to meet clients’ needs. So this was in my opinion an important EBAY acquisition.

Event August 22, 2012:

Paypal and Discover Financial Services teamed up to that shoppers can use their paypal accounts at locations that accept Discover cards. This move takes PayPal one more step closer to direct competition with Visa, American Express and MasterCard. Discover will process the payments for PayPal. Home Depot is just one merchant that accepts PayPal on their website and at their stores. Discover is a small player compared to Visa or MasterCard, but this move should help them grow.

Conclusion:

I want to start my conclusion by saying I own Amazon, not EBAY. But I believe there is room for both companies. I don’t think Amazon will ever get into auctions,other than their failed attempt, but I do believe, EBAY will become more of a regular retailer. Amazon doesn't have the retail space sewed up – Ebay has PayPal which is another excellent addition to their business. And PayPal is going to grow much larger. This year millions of offline merchant locations will be accepting PayPal. I expect in the next two years we will see PayPal revenue soar – that alone is reason to own Ebay. Of course this is a team effort with Discovery.

PayPal wasn’t there only strategic acquisition - GSI Commerce hosts websites for 180 retailers which include some big names. Many of those retailers were among the first to accept PayPal in their brick and mortar stores. GSI Commerce did much more for Ebay than just make PayPal more popular – they led about 18 merchants to sell their products on EBAY not relying only on their website for web sales. And GSI continues to add more brick and mortar stores as clients.

Amazon has an army of third party sellers that make Amazon an amazing place to shop. But Amazon competes directly with those retailers and uses their sales numbers to find new items for them to sell which I am sure is not appreciated by the third party seller that first found the obscure item and first made it popular. EBAY doesn’t compete with their merchants and that could tempt some of Amazon’s army to defect. Or maybe not! It is just too early to tell. But it is something I want to monitor as Ebay grows. Regardless there is room for both companies in what is estimated as a $10 trillion market. Both Amazon and Ebay have interesting advantages and only time will tell if one ultimately dominates. But now we are talking a few decades into the future.

Ebay's Cash flow yield today is 4.3% which isn’t bad, but not exactly cheap. They have a strong balance sheet with $12.574 billion in cash and debt of $4.5 billion. Their marketplace business is doing well, but next year should be special for PayPal as millions of offline retail locations begin to accept PayPal in their brick and mortar stores. EBAY is a $67 billion market cap company with PayPal generating about 40% of sales. I believe in time PayPal will be generating more revenue than the Marketplace business is generating, including GSI revenue. Visa is very huge credit card company with a market cap of $119 billion, but they generate around $11 billion in sales. MasterCard is smaller and generates about $8.5 billion in revenue per year and they have a market cap of $70 billion. Both Visa and MasterCard have high operating margins, much larger than EBAY’s margins, but I am guessing similar to PayPal's margins - maybe.

I wish Ebay broke out the margins of their business segments, but they don’t. I believe in time, I will be able to estimate them, but for now I am satisfied with their growth. I believe this year will be PayPal best year by far and based on that belief, I think EBAY is undervalued.

January 16, 2013 4Q:2012 earnings’ highlights:
** 4Q revenue was $3.992 billion up from $3.38 billion
** Fiscal 2012 revenue was $14.072 billion up from $11.652 billion
** TTM revenue per share was $10.68 per share
** 4Q earnings were $0.57 down from $0.60
** Fiscal 2012 earnings were $1.97
** Cash $12.452 billion: debt $4.519 billion
** Diluted share count 1.318 billion
** Cash flow for the year was $2.581 billion or $1.96 per share
** Trading range between January 16, 2013 and April 17, 2013 was $49.55 to $58.04: PE Ratio range was 25.15 to 29.46: PS ratio range was 4.64 to 5.44: Cash flow yield range was 3.4% to 4%

April 17, 2013 1Q:2013 earnings’ highlights:
** Revenue was $3.748 billion up from $3.277 billion
** TTM revenue was $14.54 billion or $11.03 per share
** Earnings were $0.51 up from $0.44
** TTM earnings were $2.04 per share
** Diluted share count 1.319 billion
** Cash flow for the quarter was 638 million up from $289 million
** TTM cash flow was $2.93 billion or $2.22 per share
** Cash $12.574 million: debt $4.5 billion
** Gross margins 69.26%: Operating margins 21.3%
** Trading range between April 17, 2013 and the present June 26, 2013 was $50.25 to $57.11: PE ratio range was 24.63 to 28: PS ratio range was 4.56 to 5.18: Cash flow yield range was 3.9% to 4.4%

Report this Post 4 Replies
Member Avatar PhilipCohen (< 20) Submitted: 7/3/2013 4:19:58 PM
Recs: 0

In reality, eBay is atrophying ...

Let’s take a look at the record of eBay’s stock price under the helmsmanship of John Donahoe. In August 2007 both eBay’s and Amazon’s stock prices were ~$40; currently, Amazon is ~$285 and eBay is ~$53. What does that tell us? Well, the eBay shills will tell us that Amazon is grossly over priced and eBay is grossly under priced, but who puts the “value” on these stocks? Is it not the same people—on Wall Street? After all, neither of these stocks are income producing stocks: neither of them have ever paid a cash dividend to shareholders (and only at eBay do the senior executives take away loads of cash in the form of gifted bonus shares on “performances” that have little effect on the stock price); and if you calculate the lack of a cash dividend for shareholders into the equation, the performance of eBay’s stock cannot be described as other than abysmal; and clearly, the smart money on “Wall Street”—quite rightly—judges the eBay/PreyPal complex to be a “dog”—arf, arf …

But, you say, PayPal will ultimately save the day; indeed, “PreyPal” has been saving the day; if you look up eBay on the trefis.com website you will see that they estimate that eBay is now getting more value from “PreyPal” than they are getting from their marketplace; in other words the eBay marketplace is continuing to atrophy. Regardless, anyone that understands how the payments system works knows that the clunky “PreyPal” ultimately has no future outside of its mandated place on the eBay marketplace or as the merchant account provider of last resort for those very small merchants that don’t have the confidence of their own banker. The reality is the new professional online digital wallets that are becoming available from MasterCard (“MasterPass”) and Visa (“V.me”) will soon enough stop the clunky, unprofessional “PreyPal” in its tracks. As for the possibility of “PreyPal” having any real success at physical point of sale—LOL … http://bit.ly/UVXx53

Then there is that little problem with eBay being demonstrably the greatest calculated facilitator of auction wire fraud on consumers that the world is ever likely to know … http://bit.ly/11F2eas

Nevertheless, “The band continued to play on, even as the bow dipped lower and lower.”—The Titanic/eBay Story ... http://bit.ly/YvxFEg

Member Avatar NetAnaylyst (< 20) Submitted: 9/28/2013 9:40:32 PM
Recs: 2

The value of ebay stock will ultimately be sabotaged by Ebay's tactics towards small sellers: In 2008 John Donahoe (CEO) called the mom and pops "noise" and made it clear he wanted to move away from a flea market operation to brand name big box retailers. With numerous policies that were enacted to eliminate small sellers (chief among these the flawed DSR system) he has been succeeding with a vengeance. 1) The DSR system adversely impacts small sellers more swiftly and egregiously then it does the favored big box and high volume retailers. This should be common enough knowledge that I do not have to delineate it here. 2) 15,000 small sellers were axed by ebay on August 6, 2013. 3) The autmomatic five-star DSR glitch/malfunction that ebay has admitted not fixing was responsible for at least some those purged getting purged because many were only out of compliance by one DSR star 3) The elimination of the policy compliance feature on the seller dashboard. If anybody thinks that was not purposefully done to hurt small sellers, I have some acreage on the moon I will sell you 4) ebay's latest user agreement update that goes into effect October 26 granting itself permission to hide sellers' listings. The majority of sellers on the ebay discussion boards think ebay has already been hiding sellers' listings and so do I 5) Ebay's numerous moves in past user agreement opt ins or opt outs to try to insulate or protect itself from class action lawsuits 6) this new managed returns issue (see new user agreement) 7) the fee hikes 8) the misuse/abuse of the DSR system to rob good decent sellers of TRS status and discounts they would get.

Member Avatar ebaystinks (< 20) Submitted: 11/26/2013 11:59:48 AM
Recs: 0

very foolish analysis. Forget the PE ratio and just look at the quarterly earnings. They are down. The stock price doesn't care about what or how you feel or what hopes you may have or what you think. It's all about numbers-thats it. This company is making less-therefore it will continue to go down as it has been. People are dumping it en mass-look at the daily volume day after day. It's more than the average. Higher than average volume with the stock ending down is a Sell sign. If you don't realize that, you shouldn't be trading stocks. In a nutshell, its due to lousy leadership. They have kicked out tens of thousands of sellers thereby cutting off revenue. They are doing exactly the opposite of what a business should do-which is to try to make money-not to lose money. This company is on the way out the door and other better marketplaces like Amazon will eat up its market share for breakfast.

Member Avatar ayaghsizian (98.14) Submitted: 1/6/2014 3:39:49 PM
Recs: 1

I feel for the sellers that got screwed. I am sorry. But anyone thinking about investing in eBay should consider all the pros and cons. Look at eBay's income statement over the years. One great thing to look at is the operating earnings line which moves up and up and up over the years. Whether you like eBay or not, they are growing and they have a lot of cash.

EBAY values the buyers more as it should and always will. More buyers means more earnings in the future. Simple as that.

Ara

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