Does eBay Deserve Better?
Stocks: (EBAY)(INTC)(AMZN)(YHOO)(GOOG)(MSFT)
eBay is down nearly a third from its twelve month high of $47.86, and fairly near its low for the period of $28.87. The company seems to be lumped with other large internet and tech giants that cannot seem to get out of their own ways. Intel, Microsoft, Amazon, and Yahoo! are certainly on that list.
Wall Street is concerned that new initiatives like Skype and blogs on the eBay site are unlikely to add to revenue. But, the prospect that terrifies investors is that search giant Google may get into the ecommerce business and that one of the targets may be the auction format of eBay.
The market may be forgetting that eBay now has 200 million people who have registered for the service. Of these, 75 million were active in the last quarter.
While Google may launch an online payment system of its own, and may even get into the auction market, it is far from certain that they will be successful. Google has introduced a number of new products to great fanfare, but examining its public financial files show that the company still makes virtually all of its money from key-word text advertising. Google also gives away most of its new services for free. This true for a large portion of its video products, its new spreadsheet software, Google e-mail, Google voice, and Google Earth. While these may be traffic builders for the company, it is still not clear how they will yield revenue. Google also has to fight a rear guard action against Microsoft and Yahoo!, both of whom are after a larger share of the search market.
If Google want to get share from eBay, it will probably have to heavily discount its competing service. It is by no means certain that a "scorched earth" plan of that kind will work.
eBay's growth can hardly be considered stagnant, especially given its size. In the quarter ending March 31, revenue rose from $1.032 billion in 2005 to $1.39 billion in 2006. Income from operations rose from $323 million to $336 million. The company increased sales and marketing costs from $271 million to $400 million. While this took a short term bite out of operating profit, it may well be the investment that keeps the company in the position of the premier online auction provider.
eBay's price to sales ratio in now just over 8, while Google's is 16.
Based on its pole position in its market and the drop in the company's valuation, eBay may well be a candidate for a move up in its share price.
Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in the companies he writes about.
eBay is down nearly a third from its twelve month high of $47.86, and fairly near its low for the period of $28.87. The company seems to be lumped with other large internet and tech giants that cannot seem to get out of their own ways. Intel, Microsoft, Amazon, and Yahoo! are certainly on that list.
Wall Street is concerned that new initiatives like Skype and blogs on the eBay site are unlikely to add to revenue. But, the prospect that terrifies investors is that search giant Google may get into the ecommerce business and that one of the targets may be the auction format of eBay.
The market may be forgetting that eBay now has 200 million people who have registered for the service. Of these, 75 million were active in the last quarter.
While Google may launch an online payment system of its own, and may even get into the auction market, it is far from certain that they will be successful. Google has introduced a number of new products to great fanfare, but examining its public financial files show that the company still makes virtually all of its money from key-word text advertising. Google also gives away most of its new services for free. This true for a large portion of its video products, its new spreadsheet software, Google e-mail, Google voice, and Google Earth. While these may be traffic builders for the company, it is still not clear how they will yield revenue. Google also has to fight a rear guard action against Microsoft and Yahoo!, both of whom are after a larger share of the search market.
If Google want to get share from eBay, it will probably have to heavily discount its competing service. It is by no means certain that a "scorched earth" plan of that kind will work.
eBay's growth can hardly be considered stagnant, especially given its size. In the quarter ending March 31, revenue rose from $1.032 billion in 2005 to $1.39 billion in 2006. Income from operations rose from $323 million to $336 million. The company increased sales and marketing costs from $271 million to $400 million. While this took a short term bite out of operating profit, it may well be the investment that keeps the company in the position of the premier online auction provider.
eBay's price to sales ratio in now just over 8, while Google's is 16.
Based on its pole position in its market and the drop in the company's valuation, eBay may well be a candidate for a move up in its share price.
Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in the companies he writes about.
posted by douglas mcintyre at 2:00 PM
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