Long Ebay/Short Knot

By: ispeculatornew
Date posted: 02.25.2009 (4:00 am) | Write a Comment  (7 Comments)

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logoebay_x45The current economic conditions continue to provide many opportunities in terms of mispriced stocks in my opinion and I’m now ready to enter into a new trade with two securities I’ve traded in the past although not through the current pair. I’m firstly going Long Ebay simply on terms of valuation. Honestly, seeing Ebay trade in single digit P/E’s makes no sense to me. However, given the current dislike from the market towards Ebay, this trade could have a tougher start than others. Ebay has a fairly stable market, little competition and makes most of its earnings through fixed and variable fees on sold items. On all accounts, you would think that the main threat to Ebay’s earnings would be a big competitor joining the game and taking away market share. While it is not a done battle, so far Ebay seems to be fighting hard and they are fairly diversified in that field with stakes in many smaller players.

knotebay

It is still unclear how Skype fits in the overall Ebay picture, mostly as to how it will be able to make money out of it. The recent news about Nokia creating phones that will support Skype is a step in the right direction although I would not count on it yet. And again, Paypal, the online payment solution by Ebay seems to be discounted. It has a very important position in the market and again is far from being challenged right now giving us hope that the very tough ride of Ebay stock might be coming towards an end…

theknotOn the other hand is Knot, the company behind theknot.com, a wedding website that is basically a media company, mostly online but it also has offline publications, all geared towards the market of young (and not so young)

couples wishing and planning to get married. Of course, the problem is the very public problems for media companies in this slowdown as companies in every sector of the economy cut down on their advertising budgets. Many offline publications have gone on the road of bankruptcy and it’s difficult to imagine that Knot will be able to come out untouched from this tough perio

d. It certainly is a leader in its niche but so is Ebay and I would expect advertising budgets to be affected a lot more than fees such as the ones that Ebay receives.

The downward risks that I see in this trade short term are mostly related to bad news about Ebay’s traffic or number of transactions. An always existing risk of course for Ebay is also the announcement of a new competitor for Paypal, something that is always possible but in recent years there has been less rumors about this and you would think that few companies would have the necessary skills and budget to enter this market.

Disclaimer: I hold no positions on Ebay or Knot

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7 Comments

  1. Comment by IS — February 25, 2009 @ 10:22 am

    Prices for this trade are:

    EBAY 11.69
    KNOT 6.78

  2. […] Financial Blogger presents Long Ebay/Short Knot posted at Intelligent Speculator, saying, “The current economic conditions continue to […]

  3. Comment by Dave — March 3, 2009 @ 11:00 am

    I think going long on EBAY is a good example of how following the usual ratios and figures can be misleading. A “walking around” type analysis – what’s actually happening on the ground – can’t be beat. In Ebay’s case there are lots of astute observations from the front, usually from long time sellers who are saddened and disappointed that EBAY has developed to such a point as to be almost unuseable by them. With these sellers’ departure, many of the cool and expensive items go, the eyeballs go, the advertising revenue goes – and well, the company follows. Sure, there’s still lots of cash in the till and lots of (tacky) items for sale but the trend is strongly downward. There’s been such a negative branding developed, that even if top management did the right thing – and quit – Ebay will be a long time coming back to what it was. Sad.

  4. Comment by IS — March 4, 2009 @ 1:58 am

    I see what you mean but please keep in mind that my play is one between two stocks, not about the overall strength of Ebay….

  5. […] Ebay is up an additional 3,7% which if it carries through could mean the successful end of the February 25th trade,  as the trade is currently up 24%. But given that part of it is after market, I will wait […]

  6. Comment by allen Joyce — April 8, 2009 @ 11:30 pm

    This is very interesting…thanks for sharing.

  7. Pingback by Intelligent Speculator | Time to dump Ebay — September 2, 2009 @ 5:02 am

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