Intelligent Speculator

Ebay… a long term BUY

Ebay recently announced its earnings and it continued its slide down to about 15$, despite some very impressive results, a profit of 492.2$M (compared to a loss of 935.6$M in the same period last year). The main reason why Ebay got killed is its own announcement that growth had slowed down, causing a layoff of 10% of its workforce.

Ebay has 3 main businesses:

-Auction and flagship: Ebay.com (and its local websites): this business is rather mature and growth has been of 4%. I think that in many local markets, Ebay has faced increased competition that is often better suited to its residents. But still, Ebay remains the leader in this market and I would think that given the current state of the economy, this represents an opportunity for their users who will be looking for second hand objects and cars increasingly. As well, Ebay has been diversifying business adding divisions like Stubhub, that are specialised sites and can compete in niche markets.

But an important opportunity for Ebay remains two of its important assets, Paypal and Skype:

-Paypal, the leader in online payments processing continues to go without any major competition and while it is true that at any moment, a major competitor such as Google could enter this market, for now Paypal’s 27% increase seems on pace to continue.
-Skype on its part, despite very strong competition continues to generate revenues, revenues were up 46%. Again, i feel like Skype still has long wways to go and I think the way they are dealing with Skype is very impressive. They have been patient instead of doing some suggested measures that could have been good in the short term (such as taking out most free features on Skype) but would have taken away a lot of future opportunities.

EBay CEO, Mr. Donahoe said he was pleased overall with the company’s performance in a tough economic environment. “These are turbulent times for which no one has the perfect playbook. There is a high degree of economic uncertainty and turmoil in the business market and that is impacting consumer spending,” he said.

So with Ebay currently trading at a P/E close to 11, I can only say that I would consider it a strong buy. I think Ebay still has a lot of growth for future years through its core business as well as through Skype and Paypal.