WSJ: A History Lesson Often Forgotten
The Skype disaster has leveled out. It makes peanuts in revenue compared to what it cost eBay. So now what? Now I look a little deeper.
eBay (EBAY) $39
• The skinny
My own experience with eBay was great. Loved to buy throwback NBA jerseys. Then one day, a seller sent me a football jersey that was two sizes smaller than what he claimed. We got into a dispute, and my credibility score took a hit. eBay does nothing to correct or punish corrupt sellers, and from that point on, I lost all interest in buying eBay items. I'm not alone, and I hardly lost anything compared to other scenarios I've read about. But I have my doubts about eBay's growth in China as long as there is a lack of control.
• Earnings
• Fundamentals
See link to Yahoo Finance
Hard to dislike these numbers: 20% profit margin, 25% operating margin, 30% quarterly revenue growth (year over year), 50% quarterly earnings growth (YOY), total cash $3.6 billion, total debt $0. The Co is sitting on a lot of money, the numbers are spectacular, and is China the last hurdle for major growth left? Can outer space be next? I don't see eBay morphing into much more after China, but with 1.3 billion potential sellers and buyers, that's worth catching this stock, I'd say.
• The chart
Even if I were going to buy shares, I wouldn't do it here, particularly after today's burst.
• News
EBay slashes Skype deal price, founders step down
Reuters - October 01, 2007 6:02 PM ET
By Sinead Carew and Eric Auchard
NEW YORK/SAN FRANCISCO, Oct 1 (Reuters) - EBay Inc (EBAY) said on Monday it would cut as much as $1.2 billion off the $4.3 billion potential price it agreed to pay for Web-based phone-calling service Skype two years ago.
The writedown on the value of the deal came as eBay said Skype co-founders Niklas Zennstrom and Janus Friis had resigned as executives, and marks a tacit admission of lackluster returns from Skype since eBay acquired it two years ago.
EBay said in a U.S. regulatory filing on Monday it would pay Zennstrom, Friis and other Skype shareholders 375 million euros ($530 million) and take a charge of $1.4 billion against eBay's third-quarter results, due out later this month.
"I think this is a testament that the Skype franchise is not worth as much as eBay originally thought," said Wall Street analyst Youssef Squali of brokerage Jeffries & Co.
Shares of eBay hit an 18-month closing high of $39.66, up 1.6 percent on Monday, reflecting the lower price the online auction leader is paying for Skype and the greater flexibility eBay may now have to put Skype on a new course, analysts said.
The stock is up more than 20 percent since late August in anticipation of strong quarterly results.
Short term, this looks scintillating. But my doubts about the inner workings of the company, from a customer point of view, remain. Separating my experience from the stock, I can see why there's optimism, i.e. the huge run-up.
Grade: A-. This is a real borderline choice, but as far as the numbers are concerned, this stacks up with the other A- graders well. Very well. I just wouldn't buy it here, well above its moving averages. And in my gut, I wouldn't buy this before most of my other A- picks. Pupule says: Wait.
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