Where is eBay Headed in 2009 and Beyond? Today’s Earnings Report May Give Us Some Ideas.

22 Apr

EBay will announce quarterly earnings this afternoon. A number of other major companies will announce earnings as well, including Apple, McDonalds, Boeing, and AT & T just to name a few. Analysts expect a profit of 34 cents a share on 1.94 billion dollars in revenue. Profit per share would be the lowest since the first quarter of 2007. Over the past 10 quarters, eBay has consistently beat expectations, so the actual numbers may be slightly higher. The stock is currently trading around the $14 mark, up from a 52 week low of $9.91 but significantly lower than the high of $32.10. The Wall Street consensus has eBay stock rated a “hold.” Somewhat against the grain, Standard and Poor’s has reiterated a 5 star “Strong Buy” rating four times in the past ten days. Their 12-month target price is $18. Other analysts have the number slightly higher or lower.

EBay leadership has made some significant decisions in the past week that may help position the company more favorably in the future, and make for a more interesting conference call with investors today. The most publicized has been the future of Skype, which eBay plans to either sell off in the form of an Initial Stock Offering some time next year or sell outright back to its founders. The decision will probably depend on the status of the economy and whether or not the stock market has continued to rebound. Skype, which eBay famously acquired in 2005 for 2.6 billion dollars, never materialized into profits. EBay never successfully integrated the chat platform into its auction website and the transaction is thought of by many as one of the company’s most serious mistakes. Nonetheless, Standard and Poor’s believes the sale may net the company as much as 2.7 billion dollars, so the overall loss could be much less than the more than one billion initially feared. Much less publicized is eBay’s announcement to purchase South Korea’s leading auction site Gmarket for 1.2 billion dollars. EBay has had serious trouble penetrating Asia’s fickle markets and the move has the potential of increasing eBay’s presence on the Mainland in the future.

EBay’s bright spot is its Paypal division, which eBay expects to process more than 100 billion dollars in payments by 2011. Paypal is hugely profitable because they charge the same fees whether the payment is a credit card transaction or not. Many Paypal transactions are pure profit for the company as the cost to transfer money from one Paypal account to another is virtually zero. In addition, eBay has successfully kept payment processors like Google Checkout and Amazon’s service off of eBay, creating the best monopoly legally available. Much less successful is eBay’s core auction business. Nielson ratings show a 5.2 percent drop in unique visitors and a 27 percent drop in page views when comparing March 2009 with March 2008. This translates to lower prices, fewer sales, and ultimately less commissions for eBay. Such a substantial drop in page views is dire news for a company whose business used to be solely auction related.

EBay’s troubles will likely continue through 2009, as more sellers leave the platform for alternative venues. Tough economic times will continue to be a mixed blessing as well, as buyers turn to eBay for bargains, but don’t have as much money to spend on luxury items. EBay has been running attractive promotions for sellers, including final value fee credits on items listed with free shipping, but many fall short of the real changes sellers are demanding. It is difficult to gauge what eBay’s core auction strategy will be in the future. For much of 2008 they tried to compete with Amazon by inviting stores with a large presence online, like Buy.com, to list items at greatly reduced costs. More recent announcements point in a different direction. EBay’s best move may be international expansion. Their proposed acquisition of Gmarket is proof that the company is still mindful of international markets. Plus, there might still be people somewhere out there that eBay has not yet pissed off.

Take care, and let’s hope today’s news is good.

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