EBAY STOCK - Lowering Our Expectations for eBay

[montrealmaps]

We have taken a closer look at eBay's EBAY financial results and have reviewed management's growth initiatives announced during Wednesday's earnings call. We are reducing our fair value estimate to reflect lower revenue growth and operating margins over the next couple of years.
Management is embarking on an aggressive strategy to reignite growth in its core platform, starting with changes to its pricing structure. Next week, eBay will announce the details of its plan to lower its up-front listing fees and raise its final value fees. The company hopes that this new strategy, combined with improved search functionality, will lead to more listings and higher conversion rates over time. However, the short-term consequence will be a lower take rate (less revenue) per transaction. We also think this strategy will lead to some consumer backlash and may initially hurt customer traffic. As a result, we have lowered our forecast for revenue growth in 2008 to 8% from 16% in the marketplace segment (and to 14% from 19% for the company overall). We expect segment operating margins to fall to 41% compared with our prior forecast of 43% as increased spending on new initiatives will outpace revenue growth.

We believe this deceleration will also lead to slower revenue growth for PayPal on the eBay platform. However, PayPal's growth off the eBay platform continues to accelerate and has exceeded our expectations. Therefore, our overall expectations for PayPal's revenue growth are unchanged. However, a higher percentage of consumers using PayPal off the eBay platform fund their account with credit cards. This is expensive, and we expect segment operating margins to suffer as a result over the next couple of years.

Overall, we're pleased to see management addressing the major issues facing the company. However, management appears to be more aggressive in making these changes than previously anticipated, and we expect lower revenue growth and margin expansion as a result. Despite this, we continue to believe that eBay is well positioned to benefit from the growth in the industries in which it participates.

EBay also announced that CEO Meg Whitman will retire March 31. Whitman has done an admirable job over the past 10 years, but we concur with her sentiment that after a decade, it is probably time for a CEO with a fresh perspective. Assuming her role will be John Donahoe, who has led the marketplace division for the past three years. Because his division has been struggling recently, we think he has a lot to prove over the next year.

EBay is still growing at a rapid clip in multiple industries across the globe. Therefore, the growth rate of its future cash-flow streams is difficult to predict. As a result, we are raising our risk rating to average from below average to account for the wider margin of safety that we would require before investing.

[tea_past_times]

Thanks for the Post Montreal, I guess we'll see if Ebay is able to replace all it's seasoned fee paying sellers with Newbies and roll merrily along after that.

I think I'll go shoot my Horse in the foot and see if it can still pull a cart after.

(no horses will actually be harmed, that was a metaphor)

[recped]

Post #1 was obviously cut & pasted and not written by montrealmaps.

Without identifying the source it has zero credibility.

Even with a known source I take any stock analysts comments with a grain of salt, it has been demonstrated time and time again that listing to many Wall Street analysts is no more accurate than throwing darts.
"What else could I do? I had no trade so I became a peddler" - Lazarus Greenberg 1915
- answering Trolls is voluntary, my policy is not to participate.

[whoscloset]

Even with a known source I take any stock analysts comments with a grain of salt, it has been demonstrated time and time again that listing to many Wall Street analysts is no more accurate than throwing darts.

Why should they be. They make more money from the under-the-table deal to pump a stock than they do from their own tips.

[momosworld]

Yup a& stupid me bought it at 41.50 last year and its never gone back 😞

Still holding it...gonna go down with the ship...

Moez.

[montrealmaps]

Post #1 was obviously cut & pasted and not written by montrealmaps. Without identifying the source it has zero credibility.

Yes, it's obvious. I simply forgot to add the source. That't all. The text was written by Larry Witt, CFA, January 28, 2008 and published by Morningstar, Inc. (NASDAQ: MORN). An independent investment research company based in Chicago, Illinois, USA.

Recped, has the article now more credibility ..? 😉

Andrew

[recped]

Yes it does and I have no quibble at all with "I simply forgot to add the source" I've done the same I'm sure.

I've re-read the quote, seems he is positive in the long haul, sees some short term hurt from the dramatic changes and an overall slowdown in growth rates for both eBay and PayPal.

It's actually pretty neutral and hardly unexpected for a company which after 15 years is maturing. Even the much ballyhooed Google is seeing revenue growth rates slow.

Of course analysts are concerned almost exclusively with the stock price, while there may be general correlations between eBay's stock price and seller successes it's hardly a direct one.

One thing for sure eBay is making Billions in annual profits and at least a reasonable portion of sellers are getting a good share of it themselves.
"What else could I do? I had no trade so I became a peddler" - Lazarus Greenberg 1915
- answering Trolls is voluntary, my policy is not to participate.

[tea_past_times]

http://finance.yahoo.com/q/ks?s=EBAY

Actually their profit was only 348.25 MILLION not billion dollars.

[tea_past_times]

What was your source on the billions quote recped??

[recped]

Source is eBay's financial statements, the results for the third quarter of 2007 are skewed by the one-time Billion Dollar write down on the Skype investment.

If you take out the Skype fiasco, 2007 profits were 1.2 Billion.

2005 - 1.082 B$
2006 - 1.125 B$

In the last quarter of 2007 alone profits were 530 M$
"What else could I do? I had no trade so I became a peddler" - Lazarus Greenberg 1915
- answering Trolls is voluntary, my policy is not to participate.