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Tuesday, August 29, 2006

What Are eBay Investors Pricing In?

eBay (EBAY) is doing even better today than it did yesterday and it looks like it will be on even stronger volume. Oddly enough, the Google (GOOG) advertising pact was announced yesterday?

EBAY closed up $40.49 at $25.79 yesterday on just over 17.8 million shares. It trades 18.55 million shares on an average day, yet as of 3:10PM EST today it traded 18.18 million shares and was up another $0.91 to $26.70. Volume is supposed to decrease each day this week in the overall markets ahead of the holiday and this is up more than on the day of the good news. The market is trying to price in an event now, and it isn't pricing in a sudden loving touchy feely we love you letter to customers.

Maybe today's buying interest in EBAY is just the market strength since the FOMC Minutes were released, but this seems to specific to the buy interest in the stock. The stock is getting back over its 50-day moving average, but it has failed to stay above that level in recent trading days.

After reviewing an email from Bambi Francisco, I decided to back and look over HER SITE to review. She works for Down Jones' MarketWatch and is not a traditional blogger.

I have been looking at the myriad of reports in recent days where the company is just making a point over and over of royally agitating and alienating its key customers who run eBay storefronts. This new initiative with Google is good for eBay, but it "can" have the propensity to lead shoppers not just away from the eBay merchant storefront. It may encourage the shopper to go to Amazon.com or other competing online stores. So the ones who have loaded up massive inventory on eBay stores are going to essentially have eBay's new partner leading shoppers away. It doesn't work exactly this way, but it is pretty close. It is damn close if you are an eBay merchant. This is the case for the Yahoo! search pact here in the US, and true for the non-US listings and searches with Google.

Unfortunately, the merchants are going to have to deal with the search features....PERIOD. Search can lead browsers and shoppers and customers away from a site directly to a competitor, and that won't change. The path of the Internet has already been informally drawn out if it isn't set in stone. Even net neutrality won't change that on a drastic basis, although that is a different topic. What the merchants won't have to deal with is constant shanking from the parent partner. Merchants can't get a betterdeal elsewhere with the same base and the same traction, because if they could they would have already migrated en-masse. eBay needs to stop forcing these guys out though, and they need to roll back "some" of their hikes. Even if they say they will have slightly lower margins they need to roll back some of the hikes. It will be bad business for them to not give in a little.

There is also probably going to be a management change soon. Meg Whitman didn't take the Disney job, but EBAY investors probably wish she had. There is no way to know if she will be gone soon or not, but if I had to place a bet I would put the Win bet on the next earnings date or sooner. I would put the Place bet by the end of the year, and my third bet for Show would be no later than next summer. It is possible she won't be the one to go. Maybe she will surface in a month and announce a replacement of several key executives and she will claim they were the dark side of the force behind the merchant treatment. Something is probably brewing as far as future "leadership" though.

Sorry for such a long dissertation, but this trading action for such a dead week on a day when there was no huge upgrade and there was no organic news out of the company seems too telling to just leave alone.

Jon C. Ogg
August 29, 2006
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