Date: Mon Apr 25, 2005 10:18 am
This is a study of eBay.
EBAY: 5 years of growth, finally slowing down a little. Paypal business grewsome 40 - 50% (this is a potential growth story that some folks seem tothink might surpass the retailing business that eBay has).
1. Most people don't know but 40% of eBay business is done through the backdoors. That means power buyers and power sellers who don't use the eBay sitethat you and I see. The big guys need big networks and unless an Overstocklike etailer becomes very big, its tough for the big guys to move. So theresafe business.... built slowly and steadily for 5 to 6 years.
2. They have bought similar companies in every country with potential. Ofcourse India, China etc. Imagine 2 billion people buying and selling stuff.AND WHY WON"T IT HAPPEN? Of course it will, broadband penetration, moresecure options of transfering goods etc. Take a look at the growth in the PCand Cell phone markets (still a lot left, ask India where cell phone usageis slated to grow for the next 5 to 10 yrs)
REMEMBER THE PC growth story. The cell phone growth story.... just whatcompanies can compete with eBay right now. And there in lies the growthstory...... Think: Motorola, Nokia, Ericsson etc they all came up withcellphones..... starting covering huge areas under their network and gotcompetitive. The catch is YOU NEED AN AUDIENCE for being an eBay competitiorand the tools to cater to C2C.... Oh but the audience is all on eBay and soare the most efficient tools. They have a huge head start.
3. The one argument out there is that: Internet audiences have very lowloyalty.... get something cheaper somewhere else buy it from there. Period!Cheaper deals are offered to your biggest customers (unless you have aspeciality retail store like Overstock that works on a different model andwhich is why I like them) and so net net, the big guys win. Also, take incase Netflix vs Blockbuster online. The verdict is still out there but letme say this, Netflix still has big subscriber growth although BBI ischeaper. Case in point for loyalty (can't directly compare this fight withour real story) but comparable.
4. Valuation: Phew.... has always been highly valued but the stock price ishalved in 4 months. Why? cause although it beat earnings once and missed bya penny once the growth engine finally stop beating by ridiculous numbers.Yes saturation and slow growth in the US markets. Future P/E 31.
5. Too much negativity on CNBC on the stock... one of my favorite buysignals. Maximum negativity helps a company when the buy guys accumulate.Average investor looks at eBay for 5 days when it first hits this low andsays I want to buy it. Oh but wait there are all these bearish articles oneBay right now and so may be I should wait. All market makers have to do iskeep it low for those 5 days. Then people get used to the new price of eBayand so its no longer a great buy. This is the perfect time for MM's to accumulate at a lower price for now what will seem like as an extendedperiod of time.
If you believe in the India, China growth story buy regardless. If you wantto be technical .... decent buy anyway. If you want to be very careful,accumulate little now and a little in the 25 to 30's. If eBay has anothermiss this year we might visit the twenties (considering the Nasdaq is atthese levels). If you believe in the bigger growth story, then this is theyear to buy and then the next round of growth Paypal, India, China and theother countries they have presence.
Have a great day and week ;-)
