eBay ($EBAY), A Very Good Investment If You Can Tolerate Some Risk

By: ispeculatornew
Date posted: 04.27.2012 (5:00 am) | Write a Comment  (0 Comments)

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I’ve written a few times about eBay ($EBAY), mostly as a believer in the stock. I had also written about how I personally value eBay as an online bank because of Paypal’s growing importance. That was confirmed once more last week when the company announced its latest earnings. Five years ago, Paypal  represented 24% of eBay’s business. These days, it is nearly half of eBay’s revenues at 43% (and still growing faster than the rest of the business). Also important to note is the fact that Paypal is growing faster than the rest of the business and seems to be a higher margin business. So yes, a few years from now, the auction/fixed price ebay.com business will become not much more than a front for its online banking operations.

All of that being said, there are clearly some things that I don’t like about eBay. First off, they do seem to have many more issues such as the one my friend experienced than you would think. Much more critical though is the fact that Paypal will continue to face increased competition. In the online payments sphere. It’s quite impressive that Paypal has remained so dominant and probably a very good idea to start moving towards providing solutions for offline transactions.

Competition remains extremely challenging though with small players (Square, etc), bigger ones (Apple, Google, etc), traditional payment companies (Visa, Mastercard) all trying to get a piece of the pie. Those attempts have been mostly unsuccessful so far despite the fact that Paypal charges relatively high fees. Why? It’s mostly because eBay remains the standard solution, the one that everyone likes to use and which is most convenient. My partner and I pay tons of fees every month to Paypal but it’s still the easiest way for us to both process and receive payments with all of freelancers and advertisers. In many ways, Paypal is to online payments what Facebook ($FB) is to the social web.

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My Fear

I personally feel like eBay is valued at a very attractive P/E ratio these days and will likely continue to go long at some point in the near future. That being said, I still think that at some point, a big player will come up with a solid alternative, as has been the case with Google+ in the case of Facebook. Will eBay’s Paypal be able to fend off such attacks as easily? I guess time will tell. So I would say that eBay is a great play in the medium term with a more uncertain long term outlook.

What are your thoughts on $EBAY?

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