Throw This Stock Away

I've been tossing a few stocks into the trash bin this month. It's not because I'm a meanie. I'm a bull at heart. However, I feel that if I'm holding onto an inferior stock -- with superior alternatives readily available -- I owe it to myself to move on.

So I'm back for another week of cleanup duty. I've got one stock that I suggest you dump, and three potential replacements that I believe will outperform the equity that I'm trashing.

Who to heave this week? Come on down, eBay (Nasdaq: EBAY  ) .

These berries are ripe for the plucking
If verbs were dollars, eBay would be the richest company on the planet.

  • My wife told me to eBay my old record collection to make room for her stuff.
  • I'll PayPal you the money for my fantasy football league this afternoon.
  • Skype Me!

However, things aren't exactly verbalicious in eBay's world these days. Meg Whitman, the charismatic CEO who guided the company through most of its growth spurt, left in April. Power sellers are more restless than usual, as if the wave of boycotts, lackluster growth, and unimpressive turnout at last week's eBay Live annual powwow weren't putting enough weight on the namesake site's shoulders.

I know that eBay is smarting for auction activity when I get not one, but two email coupons this month, offering 10% off on a completed auction purchase if I use PayPal to seal the deal. 10%? Of the purchase going to someone else? As high as the fees on eBay and PayPal may be on the selling side, it appears that eBay is willing to take a hit just to stir up some quarter-end activity. I smell smoke. Do you see the fire?

This has not been a good year for eBay, even though it did bounce back from embarrassing back-to-back, year-over-year declines in listings during last year's second and third quarters.

PayPal is still a star, but if that umbilical cord is still tied to eBay, even the micropayment service may stumble if eBay loses relevance over the next few quarters. Then you have Skype, which is growing quickly. But eBay already had to take a massive impairment hit there, which is bean-counter-speak for "I overpaid for Skype."

Even if eBay is low-balling the analysts when it projects earnings to grow in the single digits this year, the future is clouded with challenges that a maturing company with a growth stock multiple will be hard-pressed to overcome.

Good news
I promised to have three alternates for eBay, and here they are.

  • Bidz.com (Nasdaq: BIDZ  ) : As far as stateside auction sites go, Bidz isn't the biggest. It certainly isn't the fanciest. However, it is one of the most exciting (as a simple click to its landing page will find you knee-deep in several auctions that are about to end). By specializing in jewelry, Bidz has built up a niche audience. You see it in the company's growth. Earnings and revenue were up 34% and 39%, respectively, during its most recent quarter, well ahead of where more conventional online jewelers, like Blue Nile (Nasdaq: NILE  ) , landed during the same three months.
  • MercadoLibre (Nasdaq: MELI  ) : Just as eBay hit speed bumps last year in the United States and Germany -- its two largest markets -- MercadoLibre was lighting it up in its strongholds of Argentina and Brazil, as it expands throughout Latin America. The growth is impressive. The company posted first-quarter results last month, brandishing a 75% surge in net revenue, with pre-tax profits soaring 163%. The one knock on MercadoLibre after last year's scorching IPO was its valuation, but the stock has shed half of its value since peaking six months ago, despite the stellar growth. Yes, eBay owns a piece of MercadoLibre, but don't you deserve all of the growth?
  • Gmarket (Nasdaq: GMKT  ) : South Korea's leading website is smoking eBay in its home country. Now it has its sights set on Japan. As Baidu.com (Nasdaq: BIDU  ) -- the Chinese search engine giant that recently launched its service in Japan -- is finding out, it's not easy to crack a mature tech-savvy market like Japan. Thankfully, Gmarket is worth buying even if it sticks to South Korea. Earnings and revenue soared 55% and 35%, respectively, this past quarter. The stock is fetching 20 times next year's projected profits, which is a bargain for a high-margin growth stock with room to grow.

Is eBay going down? Not necessarily. But these other companies have the nimble legs and ridiculous upside that eBay presently lacks.

Sorry eBay, but there are other "Buy it Now" buttons that I'm eyeing.

Other headlines out of the recycle bin:

Do you like my substitutions? Would you rather stick it out with eBay? Are there other stocks I should look at in future columns? Let me have it in the comment box below.

eBay is a Motley Fool Stock Advisor recommendation. Blue Nile, Gmarket, and Baidu.com are Rule Breakers picks. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz is proud to have a 100% feedback rating on eBay, with 173 positive nods in unison. He does not own shares in any stocks in this story. Rick is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On June 23, 2008, at 1:58 PM, BuhByeeBay wrote:

    Finally! An honest review of a failing and dying company.

    They have themselves to blame for alienating their core customers.

    Yes, the boycott has worked!

    R.I.P. eBay

  • Report this Comment On June 23, 2008, at 2:05 PM, ruyg wrote:

    it appears that eBay is willing to take a hit just to stir up some quarter-end activity. I smell smoke. Do you see the fire?

    Congratulations you have seen past the smoke... I see the fire and it is burning out of control.

    You mention PayPal still being a star, you are correct it is tied deeply to eBay.com once that umbilical cord is severed it will fall like a rock, many sellers have been forced to accept it... to us eBay and PayPal are one in the same!

    Again you are correct the coupons you mention are an attempt to boost quarter-end activity... most of us are not falling for it.

  • Report this Comment On June 23, 2008, at 8:37 PM, Patricia013 wrote:

    Wow! Finally an honest assessment of a floundering company! You need to be commended for finally telling investors to beware of this hot potato. Yes, Ebay IS going down and if the present management isn't replaced with some people with GOOD business sense it will soon be lost forever. Mr. Donahoe's "disruptive innovation" is killing our Ebay! I'm a 10 year seller with a perfect record who is being treated like an untrustworthy criminal by this company! All small sellers are in this same boat. Nothing good can come from management who tramples their own customers...the very people who PAY them for service. I know of no other company on earth who beats up its own paying customers and ties their hands with more rules and regulations than the IRS! All you investors take heed and listen to what sellers are telling you - they are experiencing nothing but turmoil on Ebay and that is why many of them are leaving!

    www.ACEOart.net

  • Report this Comment On June 24, 2008, at 12:06 AM, unixmac wrote:

    eBay dismantled the only thing they had going for them other then brand recognition, an ingrained working system that made SEO and sales simple for the masses. Yes the site has had chronic problems, so do neighborhoods.

    We sell surplus and hard to find parts and have over 10,000 feedback on one 4 year old account. According to our feedback, over 98% (97.4 now that they have "recalculated" it) of our buyers have been happy with the service we provide selling used goods. Can a large company selling NEW goods online lay claim to 98% buyer satisfaction, including shipping times beyond their control?

    I have been selling on eBay since they started. I have always had problems with them but never any as bad as these. Up until a month ago, my company paid eBay an average of $10,500 in fees every month. With the feedback changes and being "disadvantaged" in search because of the new DSR rules. The vast majority of buyers have to click 5 stars, even though 4 stars seems fine the way eBay words it to the buyer. I have had to fight 18 hours a day over four weeks to get back 65% of our daily sales (not all on eBay) . We're down to $5,000 a month in fees with the rest of our ad budget going to Google Adwords for our new webstore as well as other auction and listing sites.

    We still need eBay to make sales but only while we transition to other sites. With eBay and PayPal fees being fazed out of our budget / business model, eBay stands to loose about $150,000 a year from one small but growing company dealing in used goods. A ripple effect being the loss from their site of about 30,000 different items posted a year driving traffic through to other items and ads.

    They have enough money to stick around for a while but I think we can forget about growth. I have never seen a flea market successfully become a mall but they are welcome to try where others have failed.

  • Report this Comment On June 24, 2008, at 2:52 AM, UnhappyEbayer wrote:

    And don't forget the padding!

    Ebay is causing sellers to leave in droves, with the new policy changes and tens of thousands are upset and will be protesting at Ebay Live 2008, this week.

    The changes are idiotic. Sellers can no longer leave negative or neutral feedback, even if a buyer bids, wins your item, ingores your emails and doesn't pay. What right do they have to leave any feedback, if no transaction has taken place? We have sellers, bidding on competitors items and ruining their feedback, just to get a boost, on their own items.

    Ebay went in and retroactively turned all neutrals, to negatives. Neutral, means just that, how can ebay call neitral, negative? They swtarted giving new discounts to people with good ratings, but they knock them down first, with the neutral change, so that many can't even meet the requirements, for the discount.

    That is not the worst of it. We have thousands and thousands of sellers, who have closed their stores and we KNOW that the listing count should be going down. But, we have uncovered the source of the raised listing counts and I can't see it being anything, but fraud.

    The seller BUY or Buy.com was taken on by ebay, right at the time ebay KNEW they were going to lose sellers. They are using buy.com, to pad the listings, to make it look like the count is up, when it really isn't. We have found thousands upon thousands of fake listings, that have no description and you can't even buy them. I found them ending tens of thousands of listings early, saying they are no longer available for sale and then immediately relisting them. Most likely to keep the sell through rate up and then relisting them again, to up the listing count 2 fold. They don't even pay any fees, being owned by ebay, so all the listings that they are padding, aren't even bringing in revenue???? Something isn't right here!

    Isn't this making the stockholders think that listings are up, when they really aren't? We have all the proof documented. I even have it documented of when I was talking to Ebay Live Help and asking them about all the ads, being ended early and it immediately stopped, when they found out that we knew about it.

    Please help us in exposing them, for what they are trying to pull. The boycotters should have a fair chance, to show what is really going on, behind the scenes.

    P.S. You can find the revolt and all the sellers who are getting ripped off by the new rules here: http://forums.ebay.com/db2/forum.jspa?forumID=113

  • Report this Comment On June 24, 2008, at 8:42 PM, tg999 wrote:

    You can argue all day about the good or bad of recent ebay decisions, but as a 10 year powerseller I can tell you something that is 100% certain - there are a LOT less buyers than ever before on Ebay.

    It's all about the buyers. Buyers are the only reason why sellers show up.

    Sellers have always had problems with Ebay, but Ebay could do almost anything so long as the buyers showed up.

    Sellers are making less money, and no matter how Ebay pads it's numbers, the truth is inevitable.

    It's not rocket science.

  • Report this Comment On June 25, 2008, at 5:01 PM, Snogbert wrote:

    Microsoft's live.com has been giving a 10%-25% rebate off any three eBay purchases up to $250 each, to a total of $750.

    For a while, eBay was giving an additional 10% to preferred buyers on top of Microsoft’s discount. So the total discount was 35%. People were buying a lot of big ticket items because of this.

    If you go to search.live.com and search for almost any product, a link will come up with the discount on eBay. You will see the CashBack

    icon in the ad banner at the top of the page. Right now, it’s 20%. It’s been between 10% and 25%.

    Makes you wonder about Microsoft's relationship with eBay.

  • Report this Comment On June 26, 2008, at 4:15 PM, aPowerSeller wrote:

    As a business professional responsible for many international business startups and as part of consulting companies serving international Fortune 1000 corporations, I developed the skills to analyze my competitors, industries and business opportunities. What are a company’s strengths, weaknesses, stated goals, likelihood of achieving those goals, the actual 'corner office agenda', etc.

    As a PowerSeller on eBay, I’ve watched the announcements by eBay and some of the activities and policy implementations with emotional opinions ranging from disappointment to disgust.

    eBay says they want to improve the buyer experience and trust. But eBay dismantled the reporting structure that allows a buyer (or seller) to tell eBay that a seller is mis-representing the item they have for sale, defrauding the ‘buying experience’ by, for example, selling glass as gemstones. This has been done in the USA and the U.K.

    eBay has always had problems with service and support to the buyers or sellers. For any program announced by eBay or PayPal, it can be difficult or impossible to reach a staffer aware of the company’s ‘marching orders’, what to do, how to do it, etc. This non-existent level of service has gotten dramatically worse over the last year.

    Quality of management, implementation of programs/policies and business vision are not strong suits of eBay management.

    The many changes from eBay are either incompetently stupid or very carefully conceived and planned. I have to believe that they are planned, conceived to eliminate sellers and throw away almost everything that made eBay successful.

    So, it appears that eBay wants to go to Fixed Price listings for generally available new merchandise. And they want to concentrate on a limited number of large sellers rather than manage a business with millions of sellers.

    A few basic questions come to mind - Why did buyers and sellers come to eBay and keep coming back to eBay instead of other online venues? How is eBay different/unique vs. other places where buyers can shop? Does eBay’s senior management intimately ‘know the business’ they are trying to run?

    If eBay’s management continues with the changes implemented and the other changes announced, what is the likely direction that management is taking the business?

    It appears that eBay’s management wants to convert from the diverse variety of the current eBay to becoming a direct competitor to Amazon, buy.com, WalMart, Best Buy, etc. and eliminate the small and medium size sellers.

    What does eBay become if they accomplish this transition? Why will buyers continue to come to eBay to get the same items they can pick up at a retail store or buy online from Amazon? buy.com? Sears? WalMart? How will eBay be better/different/unique vs. these competitors and continue to attract customers to eBay?

    I believe that the wide range of products is what drew buyers to eBay and made it successful. The auction format may have faded from favor. But having a site to wander, browse and be delighted with the unknown treasures you find is an integral part of what made eBay a desirable and unique site for sellers and buyers.

    If eBay isn't buying and stocking merchandise or shipping it, they depend upon the inventory of the sellers.

    If eBay eliminates all but a handful of large sellers, the diversity will also disappear. And the reason for anyone going to eBay instead of WalMart, Amazon, buy.com, Sears, Best Buy, etc. is no longer justified because eBay will have become just another mass merchant of the same products that are available from many, many other retailers online and around the corner.

    In a commodity market, competition is ultimately about availability and price. The new eBay, compared to their competitors, will not be in control of either price or availability.

    From a different strategic perspective, eBay has struck a special deal with buy.com, allowing buy.com to list products on eBay at drastically discounted prices. Buy.com has their own website. Every item that buy.com ships is sent with flyers encouraging buyers to return to the buy.com website for additional future purchases. Buy.com is getting access to eBay's customer base and will be siphoning those customers off to its own site.

    Only an extremely desperate company would cut off its own arm and feed it to a hungry wolf standing in front of it!

  • Report this Comment On June 27, 2008, at 6:38 AM, stockinvst wrote:

    Ebay, is going down, not especially because of Ebay, but because of Paypal. Paypal has the worst customer-service I have ever met, out of own experience. It's no wonder small sellers like to stay away from Paypal, seeing as seller protection is nearly non-existant. Fraudulent buyers can very easily scam you trough chargebacks on Paypal, out of own experience. Even when you have tracking numbers, it is possible. That is because the creditcard company/UPS/Paypal chargeback times all differ, and they all don't like to take a loss. Either of them tells you to talk to on of the other two parties, but if a certain number of days have passed UPS or CC will not comply, because their chargeback period have passed and Paypal will reverse transaction and say you have to talk to CC/UPS. But they don't give infomation anymore because their period has passed. Sometimes the seller won't even hear a reason why funds disappear from their accounts. You have to call several times before you get an answer. It is funny that honest buyers who get scammed, don't know how to abuse this. But as long as Paypal customer service don't improve, the number of fraudulent chargebacks will only increase, leading to farther increased customer dissatisfaction.

  • Report this Comment On July 02, 2008, at 4:33 PM, TheOnlyMusician wrote:

    Not taking into account the article itself, there is a reason why the people that have commented on this article have said the things they have. Ebay is a company is SERIOUS trouble! And the way they have most recently intertwined the policies that at one time were harmless to it's users are now set up in a way that can ruin people's lives! If you think that I am being pretentious, I erge EVERYONE to read an article that I came across on the Blogger News Network... http://www.bloggernews.net/116216

    The new CEO is in it for himself and he's taking NO prisoners. Users that have built Ebay to what it is today are being forced off the site and being treated like criminals. The article I mention above refrences a class action lawsuit, extremely questionable market manipulation, pathetic customer support and so much more that it will make your head spin! And I mean, the way these points are brought to light, is solid!

    Anyone that owns Ebay stock needs to seriously think about reinvesting what they have. Read this article I mentioned above and you will see just what everyone here is saying and MUCH more!

  • Report this Comment On July 03, 2008, at 5:40 PM, peonus wrote:

    Ever considered the scenario eBay might WANT stock to tumble? A few “stealth” management insiders could have put these insane feedback and DSR systems in place for the sole purpose of selling their stock in advance, watching it take a tumble; and then buy back in when they’ve eliminated the small-time PowerSellers (like you & me) for BIG business to step in, or before an announcement they made a mistake and were changing the rules back? No way they could possibly even begin to think the DSR/feedback changes would NOT cause a loss in income –for a while.... eBay’s just not that stupid –no matter how much they would want us to think they are. Didn’t go to the eBay LIVE 2008 convention in Chicago. Check out that forum on eBay. Was a disaster:

    http://www.youtube.com/watch?v=IHY0r3Sn9rc&NR=1

    Their own employees don’t agree with the changes –but need their job. It’s because they don’t know what goes on in the upper room. There has to be a reason for these changes.

    ANY large corporation doesn’t make a policy move like this that affects their stock without consulting their attorney’s. And in eBay’s case, because of their size, you can bet those attorney’s had to have consulted politicians and lawmakers. These changes have great potential for possible unfair trade business practices, anti-trust, and/or First Amendment violations, etc. Any stockholder has a right to know who these attorney’s, politicians, and lawmakers are also. You can probably bet it’s NOT just John Donohoe…he’s probably just their patsy…

    I paid them $17k in eBay (not Paypal) fees in 2007. Would’ve been over $24k for ’08 if I hadn’t cut the listings back. If they have just 10,000 PowerSellers (less than 1%) with a store leave with these averages that's a @ 200 million decrease in income. In the real world they can’t do that for long. Unless…

    There is a Senate (Housing?) legislation bill at: http://www.freedomworks.org/newsroom/press_template.php?pres... that allows eBay to report ALL our credit card transactions to the federal government. Interesting that eBay’s “Government Relations” page (link at bottom of any ebay page –notice in URL how it tracks your SellerID) that mentions NOTHING about their position on this.

    …and on 6/25/08 eBay has filed some interesting changes with the SEC for a new “Equity Incentive Award Plan”:

    http://biz.yahoo.com/e/080625/ebay8-k.html

    Doesn't the FBI and SEC investigate insider stock price manipulation? Maybe someone should just ask THEM about all this…

    Remember eBay’s an EXPERT at the “Emperor’s New Clothes” smoke & mirrors fairytale. Proof of it is found in the crazy rules in the Help files all PowerSellers have bought into for years. They may have gone too far this time though. Some kid may holler they’re not wearing any clothes…

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