No respect for Ebay (EBAY)
7-19-07: Poor Ebay (EBAY), no respect from Wall Street this morning. After posting a solid Q2 and beating the Street by 2 cents per share, EBAY is rewarded with a sell off, currently trading at $33.50 (down about 1%). Why this harsh treatment? There is growing concern that its core auction business has reached a plateau and appears to be on the decline. This is evident in its listing (2% less compared to same period prior year). The conservative guidance for the remainder of the year also did not help. Should investor dump EBAY and head for the hills?
The short answer is no. We remain bullish on Ebay. Yes, their listing is a bit off, but their other business units such as Pay Pal continue to post excellent growth. In the short term, we believed this should help offset the flat growth in its core business. Moreover, Pay pal is becoming the de facto method of online payment. We expect Pay Pal to continue its domination in this area.
Our theory with Ebay is when the economy is doing well, like we are now, online auction will have a hard time. The rational is if everyone is making good money, people would rather buy/sell in the more traditional sense. There will always be the die hard buyer/sellers of Ebay, but attracting new customers will be a challenge. Think about it, if people are making good living with decent disposable income, very few will consider buying/selling through an online auction.
However, if the economy starts to falter, our view is Ebay will see an increase in their listings as people will seek ways to save and/or earn extra money. Buyers will flock to sites like Ebay to stretch their dollars. Sellers would clean out their garage hoping to cash in on their stuff. The mentality of the consumer will shift from being complacent to conservation. This is the type of economic environment in which Ebay will thrive. Given the economy has been expanding for awhile now, the days of negative economic growth may not be too distant in our future.
In the mean time, we are not worried about Ebay’s future. We look forward to acquiring more Ebay shares if/when the opportunity permits. Our target entry price for Ebay is $30.
Comments
That's been 2 good earnings and it went down afterwards. No wonder they get less listing, it cost so much in fees it's a joke. You kind of pay double fees with paypal.
Posted by: shraz | July 19, 2007 10:54 AM
I do not understand this stock. Do you know why the share price increases quite a lot recently? Why didn't it increase on the announcement date?
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Investor have pulled their money from the mortgage/financial sector in recent weeks. We suspect some of these money is moving into technology. Given Ebay is still a good investment, investors have decided to bid up the stock. The second half of the year is also a good time for tech in general. The reason the stock didn't move up after their earnings is because their core business were flat (auction) and the guidance was considered conservative and below what Wall St. would like to see. Ebay is one of those stocks where people will buy on rumor and sell on the news, so be wary of that.
In our view, fundamentals looks strong and investors should be looking for opportunities to buy Ebay on the cheap.
-ibooyah
Posted by: N Lee | August 7, 2007 12:54 PM
Since you wrote this in July, has your entry point at $32/share changed, up or down? Plus are you still bullish re: Ebay?
Thanks
Posted by: Adam | August 29, 2007 06:54 AM
Correcting prior post: Your entry point was $30, not $32.
Any adjustments to that entry point since your original July posting?
Thanks
Posted by: Adam | August 30, 2007 05:59 AM
Hello Adam:
We believed a good entry point for Ebay is in the low 30s (between 30-32) is about right. This seems to be their support level over the last year. We remain bullish on this stock over the long term. Good luck and thanks for dropping by our site.
-ibooyah
Posted by: ibooyah | August 30, 2007 08:32 AM