Barron's Thinks eBay (EBAY) Is A Good Long-Term Buy
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Barron's published a bullish piece on eBay (Nasdaq: EBAY) over the weekend. The article theorizes that eBay is evolving into a business much more like Amazon (Nasdaq: AMZN), but only more profitable.
Barron's Michael Santoli says eBay is worth perhaps as much as 30% more that its current share price. He said the company is poised to benefit as its core auction is business improves, and its Paypal and Skype units will benefit as the economy improves. At just 14 times this year's expected earnings of $1.51 a share, and around 13 times 2010 estimates of $1.62, the company trades at a 20% discount to the broad stock market, and appears to be cheap relative to similar companies such as Amazon.com.
The volume of total items sold in the latest quarter increased by 2.7%, reversing a 1.6% decline in the prior quarter, in what Stephen Ju, an analyst at RBC Capital Markets, calls the "first real signs of a turnaround." Earnings and revenue in the quarter both were ahead of forecasts, improvements that likely mark the beginning of a lasting recovery.
eBay's focus on increasing fixed-price merchandise is working and the proportion of fixed-price items versus auction has increased over the past 12 months.
Santoli likes that eBay has better margins than Amazon. Last year, eBay earned about $1.8 billion on $8.5 billion of revenue. Amazon netted $645 million on $19.2 billion of sales.
Last year, the marketplace unit contributed approximately 65% of total revenue, and 80% of operating income. PayPal accounted for 28% of revenue and 16% of income -- these proportions have been growing with the unit's sales and profits. Skype, which still chips in less than 10% of revenue, is growing by more than 420% a year.
PayPal is a huge profit generator for eBay. It handled $16.7 billon worth of transactions in Q2, up 19% year over year after currency adjustments. The proportion of eBay transactions done via PayPal has risen from 56.5% to 64.4% in the past year. eBay management is focused to doubling PayPal's revenue in the next three years.
Barron's feels the eBay turnaround is progressing well and will only improve as management has more time to execute on its strategies.
Barron's Michael Santoli says eBay is worth perhaps as much as 30% more that its current share price. He said the company is poised to benefit as its core auction is business improves, and its Paypal and Skype units will benefit as the economy improves. At just 14 times this year's expected earnings of $1.51 a share, and around 13 times 2010 estimates of $1.62, the company trades at a 20% discount to the broad stock market, and appears to be cheap relative to similar companies such as Amazon.com.
The volume of total items sold in the latest quarter increased by 2.7%, reversing a 1.6% decline in the prior quarter, in what Stephen Ju, an analyst at RBC Capital Markets, calls the "first real signs of a turnaround." Earnings and revenue in the quarter both were ahead of forecasts, improvements that likely mark the beginning of a lasting recovery.
eBay's focus on increasing fixed-price merchandise is working and the proportion of fixed-price items versus auction has increased over the past 12 months.
Santoli likes that eBay has better margins than Amazon. Last year, eBay earned about $1.8 billion on $8.5 billion of revenue. Amazon netted $645 million on $19.2 billion of sales.
Last year, the marketplace unit contributed approximately 65% of total revenue, and 80% of operating income. PayPal accounted for 28% of revenue and 16% of income -- these proportions have been growing with the unit's sales and profits. Skype, which still chips in less than 10% of revenue, is growing by more than 420% a year.
PayPal is a huge profit generator for eBay. It handled $16.7 billon worth of transactions in Q2, up 19% year over year after currency adjustments. The proportion of eBay transactions done via PayPal has risen from 56.5% to 64.4% in the past year. eBay management is focused to doubling PayPal's revenue in the next three years.
Barron's feels the eBay turnaround is progressing well and will only improve as management has more time to execute on its strategies.
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