It’s been a wild ride in the past 2 weeks as we have been closing trades left and right, in general with mixed results. Our overall yearly return of about 35% is still well above our objectives but we still hope to get things back under control.
Long Ebay (EBAY)
Ebay is a stock that we have been trading often because we think the stock is being traded as an auction website which it is in some ways but in reality I still see Ebay as something completely different. To me, Ebay remains the dominant internet payment system which is the leader in a market that continues to experience very strong growth. It wasn’t a mistake that Ebay executives discussed Paypal before any of its other units in the latest earnings call. Ebay is now an online bank with some auction and electronic shopping segments. Possible alliances with Google’s Android to make it the official payment system on Android phones would be a very big deal for Ebay. The main risk in my opinion would be some competition from Facebook’s upcoming virtual currency or if some other competitors joined in.
That might happen but it could take some time so I prefer trading Ebay several times before that happens at the risk of having a losing trade at some point.
What to say about the company led by Carol Bartz? They never cease to amaze me. I did have a good time listening to their earnings call as the company displayed its lack of direction in many obvious ways. Hearing that Yahoo is working on a “Yahoo connect” feature to rival Facebook’s alternative is another example. Launching the same feature two years later does not seem like most brilliant idea. Besides, why would Yahoo users be excited about using their accounts as a “center” for their web experience? All Yahoo’s most important products such as email, finance & games have barely improved in the past 5 years, especially compared to rivals. Yahoo continues to be a jack of all trades instead of being a king in a few distinct segments/markets.
Someone would need to tell me where Yahoo sees itself in 5 or 10 years… I don’t see it, I don’t see them gaining business without buying something big.
The main risk in being short Yahoo remains the same every time, seeing someone come up with a serious plan to buy Yahoo. It has been discussed for years and has not happened. There were bigger rumors recently but those have died out a bit.
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When I look at the P/E ratio and the growth rate, you can see exactly why I am making this pick. I am a bit surprised to see that the trend analysis score for Yahoo is so high because the stock is down significantly since April.