I have written a few times about Ebay since starting to write on IntelligentSpeculator, and generally been positive about the stock. In fact, it was even one of my 4 stock picks for the 2009 year (in a competition I am still leading by the way!). Basically, one of my beliefs was that analysts were underestimating the impact and importance of two segments of Ebay; its Skype business as well as its Paypal business.
While in the stock picks competition I cannot actually change my picks, I do believe that now would be a good time to sell and even perhaps go short Ebay. Yesterday, Ebay confirmed it had sold its Skype business to a group of private investors for $2.75 billions. The stock did rise a little but the more negative aspect of the sale for me is that this signals a major failure by Ebay in converting Skype into cash flows. The business that could have been has now turned into a fluke. Ebay really did not do much since acquiring Skype showing little innovation, and no signs of a clear business plan. There were some interesting ideas such as pushing for a wifi cell phone on a large scale which could have been costly to launch but if it had caught on, could have been a major product. Imagine having a cell phone that does not charge per phone call or minute used but only charges a monthly fee. Ebay did have some of those ideas, but they were never promoted much and did not amount to anything close to what could/should have been…
Unfortunately, the same story seems to be going on with Paypal. While it is still dominant on the web in the electronic payments market, Paypal has not been showing much in terms of innovation and seems to be at a place where a competitor could quickly gain ground. Much speculation has been made of Google’s possible desire to enter the business but right now, the major threat is from Facebook. While the social media is still a private company, it is very quickly expanding, has a lot of cash and ambition to go with it. Facebook has become the most used social media website and has started to use that power to give itself interesting possibilities. Increasingly, Facebook users can log into different websites all around the web with their Facebook login/password. That expands the brand of course but also makes setting a payment solution much easier as customers are trusting Facebook with an increasing amount of data.
So that leaves Ebay with its core retail business which has been showing little promise and frankly no signs of an upcoming turnaround. While others such as Facebook, Google and Microsoft seem to be launching features and products on a weekly basis, there are very few announcements coming out of Ebay and to me that will end up being its demise.
Was selling Skype an error? No probably not. The error was not doing more with a product that had terrific market share and possibilities… Ebay has been at a standstill for too long and in the current tech environment, no company can afford such a luxury.