eBay Has Its Flaws

Things are looking up at eBay (Nasdaq: EBAY  ) , though things aren't as great as they may seem at first glance.

The online auction and financial transactions leader posted better-than-expected quarterly results last night. Revenue climbed 35% to $3.4 billion. Earnings exploded 260% to $1.51 a share.

However, both of those numbers are optical illusions. The revenue spurt doesn't represent organic growth, since eBay acquired e-commerce enabler GSI during the second quarter of last year. Back that out and revenue climbed at a more modest 21% clip. The pop in profitability was largely related to the one-time gain in selling a majority stake in Skype to Microsoft (Nasdaq: MSFT  ) . On an adjusted basis, earnings actually clocked in at $0.60 a share.

The showing is still impressive. Analysts were banking on net income of $0.57 a share on $3.3 billion in revenue.

PayPal continues to be the superstar here. There are now 106.3 million active registered users, 13% ahead of where the payment platform was a year earlier. Revenue soared 28% for the division, and international revenue exceeded its stateside stake for the first time in company history.

Over at eBay's namesake marketplace business, revenue climbed a respectable 16%. It could be better, of course. The holidays did just occur, and eBay had been trying to pass itself off as a hot online shopping spot. In that sense, 16% isn't all that inspiring. E-tail leader Amazon.com (Nasdaq: AMZN  ) reports later this month, and analysts are holding out for 41% in top-line growth.

In terms of auctioneers, eBay isn't growing as fast as Latin America leader Mercadolibre (Nasdaq: MELI  ) , but it's also the one fetching a reasonable earnings multiple in the low teens.

Things aren't perfect. Some may argue that eBay's getting too greedy. After all, total payment volume surged 24% (which is great on a mere 13% year-over-year uptick in active registered users) but revenue spiked 28%. Marketplace revenue climbed 16%, though the gross merchandise value exchanged only grew by 10%. In other words, eBay's milking more money out of its users -- and that's not going to sit well with folks who are already skeptical about eBay's moves in recent years.

Squeezing more money out of its users should result in chunkier margins, but why did adjusted net income only grow by 15%? GSI may be a drag here, but keep in mind that even backing out GSI's revenue would still result in growth headier than 15%.

Investors fretting about the margins aren't going to like eBay's guidance for all of 2012. The company is targeting tweaked earnings of $2.25 a share to $2.30 a share this year on revenue of $13.7 billion to $14 billion. The pros were actually expecting $2.31 a share in profitability on a little less than $13.7 billion. The top-line guidance is high, but the bottom-line company target is too low.

Oh, well -- since Amazon's margins lately have also been disappointing, maybe eBay is just out to make a fashion statement.

Now that both PayPal and eBay.com are generating more international revenue than money made closer to home, it's time to view this as a global investment. If you want a better globetrotter play than eBay, consider these three American companies set to dominate the world. It's a free report, so check it out now.

The Motley Fool owns shares of Amazon.com and Microsoft. Motley Fool newsletter services have recommended buying shares of Amazon.com, eBay, and Microsoft. Motley Fool newsletter services have also recommended writing puts in eBay and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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  • Report this Comment On January 19, 2012, at 4:18 PM, George513 wrote:

    As far as making/saving $ and eBay goes, forget the stock and use the website.

    If you send the seller a question about an item, find another of their listings, and send the question from that item page, rather than from the one that you actually want. This will add a little bit of work for the seller, if they want to add the question/answer to the item description page that you are actually interested in.

    If you see an item that you want listed in auction format, send the seller a message asking if they will accept $x to end the auction early and sell the item to you. May be telling them that they would not have to wait as long to get their money (they would probably know that, but it still might help). If that does not work, use a sniping service such as Bidball.com to bid for you. It'll bid in the last few seconds, helping you to save money and avoid shill bidding.

    Use a site like Ebuyersedge.com to set up saved searches. You'd get an e-mail whenever a match is listed. Especially good for "Buy It Now"s priced right.

    If the item that you are looking for is difficult to spell, try a misspelling search site like Typojoe.com to hopefully find some deals with items that have main keywords misspelled in the title. Other interested buyers might never see them. Then, if the item is listed an auction format, after a few days of no bids (hopefully anyway) send the seller and offer to end the auction early and sell the item to you. They may worry that no one is interested, and take whatever they can get.

  • Report this Comment On January 20, 2012, at 12:02 AM, PhilipCohen wrote:

    "eBay Has Its Flaws"

    The understatement of the all time ...

    It’s funny how various analysts can come up with so many different interpretations of the eBay financials …

    Amongst the analysts, Deutsche Bank’s Jeetil Patel is still the only one that has over time consistently been wary of eBay and again prior to the release of the 4Q2011 financial statements said, “sell”.

    As usual, Donahoe is thrashing around in the quick sand of his own making, and the eBay marketplace is continuing its stagnation compared to ecommerce in general.

    “… when foreign exchange is removed, eBay GMV growth rate for Q2-2011 is 10%, Q3-2011 is 11%, and Q4-2011 is 10%.”

    http://blog.auctionbytes.com/cgi-bin/blog/blog.pl?/comments/...

    “When Do We Start Calling eBay A Payments Company?”

    http://www.businessinsider.com/ebays-transformation-when-do-...

    This “Business Insider” article contains a revealing graph of eBay revenues since 2003. It shows quite starkly how eBay’s marketplace revenue has stagnated since 2007, about the time that the headless turkey, John Donahoe, got hold of the tiller and started his “destructive innovations”.

    So, the eBay marketplace has been stagnant since 2007—even before the GFC. Conversely, Amazon’s marketplace has not stagnated, it is consistently moving ahead in leaps and bounds, ergo the eBay Marketplace has effectively been in decline since 2007.

    eBay’s “take rate” improved simply because it is now charging a FVF on sellers’ freight costs. To what are they going to next time add FVF to again pull the wool over the analysts eyes?

    The graph also shows the eBay-underpinning increases in revenue eBay has received from PreyPal during the same period, that is, from roughly when the “eBafia Don” effectively mandated PreyPal’s use on the eBay Marketplace, and Business Insider apparently thinks therefore that eBay’s future lays in PreyPal. Dream on BI …

    Unfortunately for eBay’s chief headless turkey, Visa’s “V.me”, when it is up and running later this year, will put paid to whatever success that the clunky PreyPal has had outside of its mandated use on the eBay Marketplace—and soon thereafter both these unscrupulous and clunky entities will commence their long-deserved journeys down the gurgler.

    PayPal claims PayPal Is Not a Payments Processor!

    http://forums.auctionbytes.com/vbulletin/showthread.php?t=24...

    eBay / PayPal / Donahoe: Dead Men Walking

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