In a market where the Nasdaq is up 18.5% in a straight line -- no pullback of any consequence -- in 10 weeks' time, it's a little difficult to find any tech stock that may not have already reached valuation parameters that could make you nervous and extremely vulnerable if we somehow got the long-awaited pullback. Everything's so off-to-the-races that the idea you might still find a bargain somewhere seems almost fanciful.
But in doing my prep work for interviewing John Donahue, the increasingly influential CEO from eBay (EBAY), I believe I may have stumbled on one very cheap stock, despite its 52-week high.
Most people know eBay as an online merchant meetingplace that had a big following initially, but seems to have gone out of style for many. But the truth is that it never went out of style for those merchants who established it as their online mall and many of those merchants now use eBay as their discount channel.
It's a very respected way of doing business for a lot of mainstream retailers and is no longer just a flea market. Plus there are million and millions of people who use the darned thing every day, so let's not brand it too niche.
Then there's the fulfillment portion of eBay, the business it bought to process and send out goods purchased online, something that Amazon (AMZN) does incredibly well but, believe me, everyone wants a No. 2 in the business to keep Amazon honest. EBay is that No. 2 and while the gross margins aren't that bountiful, they are still pretty fat for a fulfillment center.
Finally there is Paypal and, as much as I have liked Paypal over the years, it is only very recently that I realized that Paypal is definitely worth the price of the entire company.
Paypal's the next generation's credit card, of that I'm certain. It's what the kids use. But with this expanded test of Paypal as a point-of-sale entry at Home Depot (HD), we are getting into a whole new plane: a competitor, direct competitor, to Visa (V) and Mastercard (MA), with the big difference that Paypal can come in as much as 25 basis points lower than V or MA and believe me, it will, and make a ton of money doing so.
Plus, if you want to see the skunkworks, go to X.com, eBay's work in progress for the modern-day, soup-to-nuts payments systems off and online that may do to banking what iTunes did to music. It is so seamless and cheap that it might attract all of the largest customers out there, particularly ones with multiple on and offline offerings and the need to ship and generate points/premiums to get loyalty going.
With X.com I am wondering if eBay couldn't just unlock the value of the company by splitting into fulfillment, merchandising and banking, because otherwise I fear that banking won't get its due.
In the meantime, eBay's expectations are low, its multiple is equal to the market's multiple even as it has accelerating revenue growth and a perfect balance sheet with $3 a share in cash.
Ebay's the kind of story that you can buy and then hope it comes down. It's the rare high-growth, value story that so many search for. And the banking business should break out this year with some very big sign ups. Donahoe told me 12 to 15 in 2012, but it will be more.
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