Investors Just Don't Get eBay

Shares of eBay (Nasdaq: EBAY  ) dipped last night, even though the company's quarterly report wasn't necessarily a stinker.

Sure, it's disappointing to see the online marketplace giant deliver guidance for the current quarter below Wall Street's consensus. It may appear to be a letdown to see revenue not keep pace with transactional volume. Net margins also could have done a better job.

However, put it all together, and it's great to see eBay growing again.

Let's dive into the numbers. Revenue grew by 18% to nearly $2.2 billion if we exclude Skype. Non-GAAP earnings of $0.42 a share are just 8% higher than the $0.39 a share posted a year ago, but analysts were settling for an adjusted profit of $0.41 a share.

PayPal was a stallion, again. Revenue rose by 26%, fueled by a 35% spike in total payment volume to $21.3 billion. This is a niche that eBay owns practically uncontested. Visa (NYSE: V  ) announced a $2 billion deal for CyberSource (Nasdaq: CYBS  ) yesterday to gain a bigger foothold in online transactions, but that isn't going to get in the way of PayPal's consumer and merchant dominance.

Besides, we're not seeing PayPal slow down since American Express' (NYSE: AXP  ) recent acquisition of Revolution Money. If banking heavies Wells Fargo (NYSE: WFC  ) and Citigroup's (NYSE: C  ) C2it couldn't vanquish PayPal while it was still in the crib several years ago, it's hard to fathom any financial-services juggernaut unseating PayPal.

Things also aren't going so shabby at eBay's flagship marketplace business, with revenue clocking in 13% higher. $13.4 billion worth of goods were swapped through eBay's sites, a 24% boost over the past year. The acquisition of Gmarket, favorable foreign currency translations, and its free, ad-supported online classifieds helped pad results, but at least eBay's marketplace business has now posted back-to-back quarters of year-over-year gains on the top line.

Growth-stock investors with an appetite for auction stocks will undoubtedly be won over by headier gains that Latin America's MercadoLibre (Nasdaq: MELI  ) is likely to deliver next month, but eBay's the one that can be had at just 15-16 times this year's projected non-GAAP earnings.

If everything is so rosy, why is the stock taking it on the chin?

Well, eBay expects to earn an adjusted $0.37 to $0.39 a share this quarter on $2.15 billion to $2.2 billion in revenue. That's both a sequential retreat and just short of where Wall Street is perched.

So? Haven't we learned how eBay works by now? Despite meandering through the recession, eBay has found a way to now beat analyst estimates in 15 consecutive quarters. Unless the economy sours between now and June, my money's on seeing eBay stretch its streak to 16 consecutive quarters of landing slightly ahead of the pros.

What did you think of eBay's report? Share your perspective in the comments box below.

American Express is a Motley Fool Inside Value choice. MercadoLibre is a Motley Fool Rule Breakers selection. eBay is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a bull call spread position on eBay. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz is a satisfied eBay user, with 178 positive feedbacks to show for it. He owns no shares in any of the companies in this story and is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


Read/Post Comments (13) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 22, 2010, at 11:21 AM, ZZyzxZZ wrote:

    Go to eBay/community/discussion Boards/Seller Central and look for a thread called, "5 DAYS STRAIGHT, NOT 1 SALES. SELLING FOR 10 YRS.WHAT THE IS GOING ON HERE!"

    It was started on April 5 and has 1300 entries. There's several similar threads but this one is the liveliest. Contributing are dozens of sellers who have been selling on eBay for many years with thousands of sales.

    Something happened recently to kill sales. There's lots of conjecture as to why but it seems that all over the internet sales have nosedived. eBay's guidance was not pulled out of thin air, and it's not pretty. I'm actually surprised they were so candid because Donohoe needs the price to rise to make all his stock options worth anything.

    Look for crown jewel Paypal to be spun off so the HOE can make some personal bucks. What will be left is a sinking ship.

  • Report this Comment On April 22, 2010, at 11:22 AM, ZZyzxZZ wrote:

    Go to eBay/community/discussion Boards/Seller Central and look for a thread called, "5 DAYS STRAIGHT, NOT 1 SALES. SELLING FOR 10 YRS.WHAT THE IS GOING ON HERE!"

    It was started on April 5 and has 1300 entries. There's several similar threads but this one is the liveliest. Contributing are dozens of sellers who have been selling on eBay for many years with thousands of sales.

    Something happened recently to kill sales. There's lots of conjecture as to why but it seems that all over the internet sales have nosedived. eBay's guidance was not pulled out of thin air, and it's not pretty. I'm actually surprised they were so candid because Donohoe needs the price to rise to make all his stock options worth anything.

    Look for crown jewel Paypal to be spun off so the HOE can make some personal bucks. What will be left is a sinking ship.

  • Report this Comment On April 22, 2010, at 11:29 AM, Patricia013 wrote:

    ZZyzxZZ stole my thunder! Please do go read that thread he mentions in Ebay's Seller Central discussion board. Since Ebay desperately dumped everything into core sales have slowed almost to a stop - traffic went elsewhere. As a 12 year seller - my listings are way down to only three and after those I may not bother with Ebay again.

    "However, put it all together, and it's great to see eBay growing again."

    Pal....I mean this with all due respect - you're clearly as dillusional as John Donahoe!

  • Report this Comment On April 22, 2010, at 11:29 AM, Patricia013 wrote:

    ZZyzxZZ stole my thunder! Please do go read that thread he mentions in Ebay's Seller Central discussion board. Since Ebay desperately dumped everything into core sales have slowed almost to a stop - traffic went elsewhere. As a 12 year seller - my listings are way down to only three and after those I may not bother with Ebay again.

    "However, put it all together, and it's great to see eBay growing again."

    Pal....I mean this with all due respect - you're clearly as dillusional as John Donahoe!

  • Report this Comment On April 22, 2010, at 12:19 PM, lebennington wrote:

    The name of your article should be:

    Sellers just don't get Ebay

    Evidently, John Donahoe is under the illusion that he can get by without sellers. Once the invoices come out for this month and sellers see how much in fees they are being charged and how little they are selling, they will not stick around. How can they?

    If you are an investor, go read that thread that ZZ mentioned ("5 DAYS STRAIGHT, NOT 1 SALES. SELLING FOR 10 YRS.WHAT THE IS GOING ON HERE!"). Educate yourself to what sellers are dealing with and talking about concerning Ebay. Don't go by the stock article writers who are simply passing on Ebay's PR spin.

    Ebay's spin last month was the lowering of Ebay insert fees. What sellers are actually finding is a dramatic increase. They were promised - just wait until your store items are in the core - you will be selling like crazy. And yet, there is the 1300+ forum thread that will tell you otherwise. Sellers are clearly frustrated with both Ebay and PayPal.

    The forecast for the next quarters isn't real rosey. Perhaps Ebay is finally realizing that disruptive innovation is not working.

    So what are you going to do now Johhny D?

  • Report this Comment On April 22, 2010, at 12:46 PM, beevercleaver wrote:

    "However, put it all together, and it's great to see eBay growing again."

    With several years and thousands of Feedback for Sales (175 is not a qualifying # in my view) I am shocked to see anyone say that. My Sales have dropped year over year for the past 3 years. This past year it's been 50% of 2008. It has picked up a little since the Holiday season but hardly a blip on the charts.

    I don't know why Mr D finds "disruptive innovation" so appealing because he's disrupted one of the most vibrant e-tailer markets in the world. Disrupted to the point of an exodus of hundreds of thousands of veteran Sellers. There's just no money to be made here anymore.

  • Report this Comment On April 22, 2010, at 3:05 PM, RicRoe wrote:

    It is analysts that do not get eBay.

    CEO John Donahoe has misread eBay's marketplace business since joining eBay in 2005. One look at the marketplace business since 2005 shows that without PayPal profits, eBay would be another Internet footnote.

    Donahoe seems to be unable to produce the turnaround he promised when he assumed the role of CEO.

    His refusal during the earnings call to report on how eBay's recent fee increase has impacted eBay is typical for for his methods of operation. Donahoe expects investors to sit back and wait for 2 or 3 more quarters before assessing the impact the fee increase will have on the marketplace. By his timetable, the damage becomes too late to reverse.

    Donahoe is always asking investors to look ahead in time, and refuses steadfastly to look back and admit that his eBay makeover is alienating buyers and sellers alike.

    Every small seller that is driven to leave eBay's marketplace is another buyer that takes their business elsewhere as well.

    Policies over the past 2 years implemented by Mr Donahoe have driven more and more small sellers out of eBay which explains the explosive growth seen by thge likes of Amazon and the triple digit growth of smaller marketplaces such as Bonanzle, eCrater, to name just a few.

    John Donahoe's willingness to tell investors to wait and see is not sitting well with those investors, as eBay was down after the earnings announcement and is headed downward again in trading today..

    Analysts will likely ride the Donahoe train until it becomes too late to revive eBay's failing marketplace, and investors heeding that advice will lose plenty on the slow ride down.

    Expect Amazon to eat eBay's lunch again with their earnings call after the bell today.

    At least Amazon's CEO knows how to grow a business without alienating his ever expanding customer base.

  • Report this Comment On April 22, 2010, at 4:52 PM, Patricia013 wrote:

    "Donahoe is always asking investors to look ahead in time, and refuses steadfastly to look back and admit that his eBay makeover is alienating buyers and sellers alike."

    All well and good - BUT - have any of you analysts figured out what Ebay LOST in revenue due to Donahoe's tearing up of the successful business model Ebay once was? You look the other way. I can tell you as one small seller that I've lost from $8,000 to $12,000 each year - not much but then I'm a small seller - it goes on up the scale into the millions for big powersellers who up and left! Yet nothing is reported about these losses. Donahoe looks forward only - apparently trying to hold onto what's left of his compensation package until he is escorted from the site! Don't keep looking for that spark that will tell you Ebay is about ready to explode into dizzying success....it ain't gonna happen!

  • Report this Comment On April 22, 2010, at 4:53 PM, Patricia013 wrote:

    "Donahoe is always asking investors to look ahead in time, and refuses steadfastly to look back and admit that his eBay makeover is alienating buyers and sellers alike."

    All well and good - BUT - have any of you analysts figured out what Ebay LOST in revenue due to Donahoe's tearing up of the successful business model Ebay once was? You look the other way. I can tell you as one small seller that I've lost from $8,000 to $12,000 each year - not much but then I'm a small seller - it goes on up the scale into the millions for big powersellers who up and left! Yet nothing is reported about these losses. Donahoe looks forward only - apparently trying to hold onto what's left of his compensation package until he is escorted from the site! Don't keep looking for that spark that will tell you Ebay is about ready to explode into dizzying success....it ain't gonna happen!

  • Report this Comment On April 22, 2010, at 4:59 PM, jrj90620 wrote:

    <PayPal was a stallion, again. Revenue rose by 26%, fueled by a 35% spike in total payment volume to $21.3 billion. This is a niche that eBay owns practically uncontested. Visa (NYSE: V) announced a $2 billion deal for CyberSource (Nasdaq: CYBS) yesterday to gain a bigger foothold in online transactions, but that isn't going to get in the way of PayPal's consumer and merchant dominance.>

    You must be kidding or don't know much about Ebay.They bought Paypal and then,recently, forced sellers to only accept it unless they wanted to set up their own credit card accounts.I wouldn't look at Paypal's results as some confirmation of how Ebay auctions are doing.

  • Report this Comment On April 22, 2010, at 5:24 PM, bretco wrote:

    All this negativity, not a single satisfied seller or customer is leading me to believe

    1.Sell immeadiately

    2. Someone is sabotaging E-Bay, unfairly

    What say you Oh mighty FOOL ?

  • Report this Comment On April 23, 2010, at 1:40 AM, dgmennie wrote:

    Yes, something HAS happened on eBay within the past few weeks. The area I am concerned with is a small niche -- collectible records. For many years the total number of listings here at any given time was around 200,000 to 300,000. Now, suddenly, the listings have exploded to 2,500,000 give or take 100,000!

    From what I can tell a HUGE number of "buy-it-now" postings have suddenly been stuffed into the mix, perhaps from eBay stores, that never appeared in the search results before. You might think this was a great thing for buyers, with so much more to search through, but it is not. All the new listings are either (1) extremely overpriced items or (2) reproduction, reissue, or counterfeit merchandise often from major dealers who long ago gave up carrying much genuine product. In fact, the number of real auctions involving recordings of interest to serious collectors (once the heart and soul of eBay), is now less than 10% of the listing total. And when you cull out the common records and worn-out discs, the total of worthwhile auctions shrinks even more.

    Couple this with eBay's "smarter-than-you-are" software which "finds" ridiculous junk by automatically twisting carefully-created search terms to something that produces a meaningless "hit" and you have a full-blown disaster.

    Without PayPal (now forced on everyone who uses eBay), this house of cards would have collapsed long ago. It always amazes me how such a truly original idea created in the mid-1990s could have come such a long way ... in the wrong direction. The most abundant element in the universe is not Hydrogen. It is MANAGEMENT INCOMPETENCE!

  • Report this Comment On April 23, 2010, at 1:58 AM, PhilipCohen wrote:

    Well, no matter how “Dr Death” Donahoe spins it, relative to all other ecommerce, the eBay Marketplaces are still going backwards.

    eBay Second Quarter: eBay presently appears to have the death rattles; the rusting hulk has been effectively dead in the water now for some number of weeks: sellers are squealing like stuck pigs that they are effectively paying increased listing fees but getting, not simply less but, practically no exposure, and therefore very few sales. eBay is effectively defrauding them: taking their money but not giving them the service they contracted to give (so, what’s new?). But, don’t believe me, take a look at eBay’s own forum thread at

    http://forums.ebay.com/db2/topic/Seller-Central/5-Days-Strai...

    And, when the banks do eventually get off their butts and complement their card system with a card/terminal-less system for online transactions, they will do it properly, and the dysfunctional PayPal will undoubtedly then sink like a stone—except possibly on what is by then left of the Donahoe-shrunken eBay marketplace. So, PayPal’s future therefore appears problematic, and “Peter Principle” personified is delusional if he intends relying on PayPal to keep the old tub afloat.

    And for anyone interested generally in the matter of shill bidding fraud by unscrupulous professional sellers on buyers, fraud that I believe I can demonstrate is being knowingly encouraged and facilitated by eBay, and the damage that that can do to consumer confidence in the eBay platform, do see my introduction thereto at

    http://www.auctionbytes.com/forum/phpBB/viewtopic.php?p=6502...

    Is it any wonder the eBay marketplace is struggling when compared to the others in this area?

    Donahoe/eBay/PayPal: Dead Men Walking

Add your comment.

DocumentId: 1161232, ~/Articles/ArticleHandler.aspx, 7/31/2014 5:56:05 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement