Does Anyone Still Care About eBay?

 | Jan 17, 2012 | 3:00 PM EST  | Comments
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Web auctioneer eBay (EBAY) reports fourth-quarter earnings Wednesday Jan. 18, and I'm wondering if anyone cares.

Sure, the announcement will get plenty of attention. But looking at the stock, I'm wondering if investors really care. The two-year chart looks like a heart attack. The company has a market cap of just over $39 billion, yet investors can't seem to make up their minds about it. (I guess there's so much money sloshing around in the stock market that $39 billion wasting away is no big deal.)

But what is the investment thesis going forward? Does the share price grow again or is it stuck in a time warp? eBay is the dot-com that time forgot.

It's not as if eBay isn't trying. It is. In the third quarter, revenue grew 32% year-over-year. Net income rose 14%, and earnings per share rose 12%. In the trailing twelve months, eBay posted a 20.5% operating margin. Management gave revenue guidance of $3.2 billion to $3.35 billion and earnings per share of $0.55 to $0.58. (Wall Street forecast $0.57 per share) For the full year, the company expects revenue in the range of $11.5 billion to 11.6 billion and earnings per share in the range of $1.98 to $2.01.

The big drag on eBay's financials was finally offloaded, when it sold Skype to Microsoft (MSFT) last year. In a bid to bolster its e-commerce activities, eBay made a concerted effort to acquire a series of smaller e-commerce players.

While eBay's international opportunities are certainly huge, investors are interested in its domestic business. In the third quarter, active users were up 6% year-over-year and gross merchandise volume, excluding vehicles, was up 16% to $14.7 billion as more trinkets changed hands. The PayPal juggernaut continues. PayPal ended the quarter with 103 million users, up 14%, and processed $29 billion in payments, a 31% growth rate.

Last year, I went to eBay's analyst meeting and came away with a "show me" feeling. Apparently, everybody else felt that way because the stock hasn't done much. I know a lot of people consider eBay undervalued and have price targets in the high $30s. But to me, eBay continues to be a "show me" stock. In afternoon trading, the stock is down $0.12 to $30.50.

On Jan. 3, Scott Thompson resigned as president of PayPal to take the job of Yahoo! (YHOO) CEO. It remains to be seen how his departure will affect the company; he was a big part of PayPal's success.

I also want to know how eBay is planning to grow its e-commerce business. It seems as if e-commerce is taking off all around eBay and the company is not participating. It acquired GSI Commerce in June 2011 for $2.5 billion, but the deal isn't likely to move the dial on revenue much. Revenue growth has recently come on strong, but margins remain under pressure. It's likely eBay will need to increase its deal-making and spending in 2012, so margins may remain under pressure.

Until I see eBay really break out, the stock appears to be stuck in limbo.

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