Check a chart of eBay these last three months and you'll see a company in rally mode; a rally that is continuing in a big way today and today's momentum comes from an ironic source. Earlier this quarter, eBay wrote down its Skype investment by about 50%; a blistering admission that $2.6 billion purchase price--even the entire deal itself--was a pretty big mistake.
But today, eBay's Skype announces a dealwith News Corp's MySpace and the stock shoots north once again, to the tune of another 5%. Not a bad move for a company that traded at $33 in change back in August, and is knocking up against $40 a share today. That's a 20% move before today's action. It's 52-week high is $40.73.
The Street is looking for 33 cents on $1.83 billion. I've talked to a number of analysts who expect 34 cents.
And we're still talking about the third quarter. eBay traditionally flips on the after-burners in the fourth quarter. The issue for the company though becomes one of valuation, thanks to a 30% year-to-date move in its shares. This was a downtrodden stock last year and the year before as the company tried to get its financial engine back on track.
Fundamentals now do seem solid, analysts do expect the company to show margin expansion later today, and the core marketplace business--70% of the company's revenue--is showing signs of acceleration. And PayPal, unlike Skype, continues to pay off big for the company, despite the lurking threat from Google and its CheckOut alternative which still hasn't caught fire with consumers. Yet.
The conditions going into 2007 were far different than they are now, and eBay will likely not be able to see the kind of margin motivation that say, an Amazon enjoyed when that company reported its earnings last quarter and exploded into the stratosphere. In other words, eBay may actually become a victim of its own success in a couple of quarters.
Mark Mahaney at Citigroup tells me that consumers, buyers and sellers are finding alternate ways to communicate and transact with each other other than eBay. "That's fundamentally different than what you had three years ago, four years ago, five years ago. We're not going to get back to the multiples eBay had in the past."
In other words, there's still upside to these shares, but probably not for very much longer. Don't expect a hockey stick kinda chart (up and to the right) for any long period of time. That makes sense when you look at the company's history. Shares were so devalued at the beginning of this year, and they've spent the last three quarters getting back to a place normalcy, if you will. They're fast approaching what could be a peak if the company can't find a new way to either grow its existing business, or find new ways to make money.
Which leads me to the dark horse scenario: eBay might want to think about a move into display advertising, seeing as Yahoo seems to be enjoying surprising success on that front.
Everybody seems focused on what may happen next to ValueClick , which issued an earnings warning yesterday, and who might snap up the company if it decides to forgo its independence, along the lines of DoubleClick, Acquantive, and Right Media. EBay might be a a little gun-shy on deals, thanks to Skype, but a merger with ValueClick could make sense. And after yesterday's warning, eBay could buy the company on sale! Eleven percent off!
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