New stock pick: Long Ebay (EBAY) & Short IAC Interactive (IACI)

By: ispeculatornew
Date posted: 08.09.2010 (4:00 am) | Write a Comment  (12 Comments)

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Last week, when looking at some charts, I got an email about IAC Interactive having gained as much as Apple (AAPL) so far this year. It seemed like some type of typo when you know that IAC Interative continues to deliver sub quality websites. But it is true, both have returned between 20 and 25% and that just does not look right.

Knowing that, I tried looking for a superior company trading at a similar P/E ratio and the best fit looked liked Ebay which is looking more and more like an online bank. Competition is coming from Facebook among others but I still believe it can maintain higher growth than IAC Interactive.

Valuations

Both stocks are trading close to 25$ and while IAC has been very volatile with its earnings and I just don’t think it can compete with Ebay which has been generating close to 2$ of earnings per share. I just do not see how IAC could compete with Ebay in terms of revenues, profits or growth so there is no logical reason for these two stocks to trade at similar valuations. You can take a look at the numbers for yourself.

I will be writing on Thursday or Friday about how I value Ebay, as it has changed over the past few years.

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The main points that stick out when looking at the numbers are:

-The main numbers that favor IAC are the trends and analyst ratings. I am obviously aware of the trends since that is one of the main reasons why I am entering this trade. I am a bit surprised by the analyst ratings but it’s fairly equal between the two companies so I’m not too concerned about it.

In case you are wondering, there is no P/E ratio for IAC Interactive this year, it is of course because the company has been losing money. It is expected to get back to profitability next year but still far from the more reliable Ebay. Apart from AOL, IAC is the most attractive company to short among the companies that I follow so I obviously feel very happy with this trade.

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12 Comments

  1. Comment by Mike — August 9, 2010 @ 11:22 am

    quick question:
    what would be the transaction fees of setting up this trade?

    is short selling the same price as buying a stock?

    thx!

  2. Comment by IS — August 9, 2010 @ 7:09 pm

    @Mike – not very much, it’s basically one buy and one sell. Depending on the quantity, maybe 20$?

    And yes, it’s pretty much the same thing:)

  3. Comment by Philip Cohen — August 11, 2010 @ 1:46 am

    When do you think that eBay might share some of the loot with stockholders? Or are the executives keeping it all for themselves? Or does the huge stash of cash even really exist?

  4. Comment by IS — August 11, 2010 @ 3:07 am

    @Philip – Are you trying to say something here?:)

  5. Comment by Philip Cohen — August 11, 2010 @ 4:11 pm

    The eBay Marketplace, under the guidance of John “Peter Principle” Donahoe, is continuing its journey down the toilet. If stockholders can’t get their hands on a dividend out of any of eBay’s stash of overseas cash they certainly now have little chance of making anything off the stock price.

    And if you want an understanding of why this most despised, unscrupulous company of fraudsters is going nowhere, try http://forums.auctionbytes.com/vbulletin/showthread.php?t=23540

    And, if you still think that eBay is such a good buy, then by all means open another margin account and buy ten times as much eBay stock as you can afford and take the exciting Donahoe ride; John Donahoe needs all the help he can get of late.

  6. Comment by IS — August 11, 2010 @ 4:48 pm

    @Philip – as I will explain tomorrow, I consider Ebay as as online bank more than an auction company at this point, that is where the growth and revenues come from….

  7. Comment by Philip Cohen — August 11, 2010 @ 5:52 pm

    The eBay Marketplaces are going nowhere. You must therefore be referring to PayPal, the bank that is not a bank.

    Draft Media Release re PayPal

    “It is with great sadness that eBay’s Chief Headless Turkey, John Donahoe (aka “Peter Principle”—among many other derogatory terms), announces the probable demise of eBay’s most ugly daughter, PayPal. PayPal is about to be stricken by particularly virulent strains of Visa+CyberSource and Mastercard Open Platform; these afflictions are aggravated by PayPal’s insurmountable lack of direct financial institutions support and a great deal of PayPal merchant dissatisfaction, particularly with respect to PayPal’s grossly unfair, “all responsibility avoiding” user agreement, totally primitive risk management processes, and grossly unprofessional, buyer-biased, fraud-facilitating (indeed, non existent) transactions mediation, to name just a few of the “inconveniences” that PayPal merchants have to endure.

    “PayPal’s health may therefore be expected to deteriorate and, if ultimately not completely incapacitated, will most likely be eventually confined to its mandatory offering on what little there will, by then, be left of the Donahoe-devastated eBay marketplaces. There is no cure for this condition, and the “eBafia Don” is particularly saddened by the inevitable presumption that it is unlikely that PayPal, will be able to continue to underpin eBay’s sagging bottom line too far into the future.”

    Yes, it’s a send-up. But, the fact is, had the developers of the original “bankcard” concept ever behaved the way PayPal behaves towards its payees, credit/debit cards may never have gotten off the ground, and we would probably still be paying for all our purchases with bits of paper and little metal discs.

    It appears that there is effectively no PayPal representation at all on behalf of the payee with respect to a payer making a credit card chargeback—for whatever reason. PayPal apparently simply accepts the chargeback and passes it back onto the payee. PayPal’s processes are so “clunky” that they are an open invitation to unscrupulous buyers to defraud sellers, and PayPal’s system apparently offers payees absolutely no protection against this form of potential fraud.

    Indeed, all those payments processors that do not have the direct underlying support of the financial institutions ultimately involved and who actually “know” the two entities involved in any transaction, as does have the likes of Visa and Mastercard, all have the same insurmountable—and ultimately potentially fatal—deficiencies that PayPal has—no effective, non-disruptive, risk management process.

    In Australia, PayPal, unlike all other payments processors, has declined to sign up to the payments processors’ “Code of Conduct”, and the clear message therefrom is “user beware”!

    I accept only that from a buyer’s point of view PayPal is more convenient than paying directly by credit card, and PayPal may still have some momentum therefrom. But, from the merchant’s point of view, for the number of material reasons referred to above, PayPal is a most unprofessional, inefficient and clunky system.

    When the new banks-supported online payments interfaces offered by the likes of Visa/Mastercard are refined to the point of similar convenience, I have no doubt that PayPal’s appeal to merchants will very quickly dissipate as the obvious superiority and greater professionalism of the banks-supported online systems gather their own momentum with merchants.

    It’s only a matter of time …

    Having said that, the banks risk assess their merchant clients before they hand out merchant accounts so that maybe not every small “merchant” (or payee) may be able to obtain one of the banks’ online merchant/payee accounts. Maybe there will always be a place for the likes of PayPal—they could become the “online merchant account provider of last resort”. Can you imagine what PayPal’s level of service will be like by then?

    A detailed examination of and prognosis for PayPal, (including a further link to the “PayPal Horror Tour”) at: http://forums.auctionbytes.com/vbulletin/showthread.php?t=23309

    eBay/PayPal/Donahoe: Dead Men Walking

  8. Comment by IS — August 11, 2010 @ 7:22 pm

    @Phil – That is from 4 months ago and Paypal just had about 20% of increase…

  9. Comment by Philip Cohen — August 11, 2010 @ 8:08 pm

    Then, at the risk of repeating myself, if you think that eBay stock is such good value, don’t tell everybody else, keep the upside for yourself, and you open another margin account and buy ten times as much eBay stock as you can afford and you take the exciting John Donahoe ride. eBay’s Chief Headless Turkey, John “Peter Principle” Donahoe needs all the help he can get of late.

  10. Comment by IS — August 11, 2010 @ 9:09 pm

    @Philip – Discipline is part of any investor… this one trade like 18 others this year…will never put everything on one investment:)

  11. […] Comments IS on New stock pick: Long Ebay (EBAY) & Short IAC Interactive (IACI)Philip Cohen on New stock pick: Long Ebay (EBAY) & Short IAC Interactive (IACI)IS on What is […]

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