Can you buy a pineapple upside-down cake on eBay (NASDAQ:EBAY)? It makes you wonder when you see that the leading auctioneer's latest quarterly results appear to be all flipped around, at least given the way some eBay Stores vendors were hollering about select rate hikes a year ago. Those same vendors are now being credited for a sharp 33% spike in listings. International marketplace revenue was up 25%, while stateside eBay.com revenue grew at a quicker 30% clip -- though international revenue was up a heartier 32% when adjusted for currency changes.
This isn't the same vulnerable eBay that was suffering through perpetual quarters of sequential dips in domestic marketplace growth. Even though the company's results were ultimately uninspiring, it's good to see eBay grow nicely through its collection of verbs: eBay, PayPal, and Skype.
Yes, I said the earnings were uninspiring. The company earned $0.17 a share, but that's less than the $0.19 per share that eBay had earned a year earlier. Even if you add back all of the stock-based compensation and acquisition-related items, eBay still earned just $0.20 a share. That isn't the kind of growth that some investors may be willing to pay up for, with eBay trading for more than 40 times its 2006 profitability outlook of $0.96 to $1.01 per share.
Some investors may even question the merit of the Skype deal. The company is looking for Skype to produce $200 million in revenues this year -- a small piece of the $5.7 billion to $5.9 billion that eBay is aiming for as a whole this year. It's also a sliver of the Skype price tag, which comes to at least $2.6 billion.
Some may see it that way. I don't. Even though I think the stock's lofty valuation shackles the near-term upside, I am still sold on the company's move to gobble up Skype.
It's not just about the revenues. It's also about the breadth. With Skype, eBay is able to reach a much larger global audience, and that will make its worldwide growth that much easier.
eBay also finds itself competing against online communication companies like Yahoo! (NASDAQ:YHOO), Time Warner (NYSE:TWX), Google (NASDAQ:GOOG), and Microsoft (NASDAQ:MSFT). If eBay was going to bump against these companies eventually, it's comforting to know that it's doing so with a market leader like Skype.
Skype will still pay near-term dividends. Just last month, the company rolled out Skype for Business and began to integrate the online telephony service into its other sites. That's nice, but it won't be enough to help obliterate some of the near-term concerns. During last night's conference call, analysts took the company to task for not raising its 2006 guidance and for the troubling statistic that the number of listings grew faster than revenue.
This will all weigh on the company until we see how the company's Skype initiatives pan out and how the upcoming rollout of eBay Express goes. In the meantime, eBay may be a dynamic shopping and selling marketplace, but when it comes to the stock, the "Buy It Now" button doesn't seem all that tantalizing.
eBay has risen 134% since being tapped as a Motley Fool Stock Advisor newsletter recommendation in June of 2002. Time Warner has also been singled out by the premium research service, and Microsoft is an active Inside Value selection.
Longtime Fool contributor Rick Munarriz is a satisfied eBay user, with 166 positive feedbacks to show for it. He does not own shares in any of the companies mentioned in this story. Rick is a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance.
