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Will Ebay’s Upward Momentum Continue in 2014?

February 23, 2014 | About:
Muhammad Bazil

Muhammad Bazil

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There has been a lot of buzz in the financial world about Ebay (EBAY) these past couple months as the company makes a series of announcements regarding its plans for the coming year. Its stock rallied more than 8% following all the good news and the report of an exceptional fourth quarter in 2013.

The good news for investors

Ebay exceeded analyst’s expectations earlier this year with the release of the fourth quarter report showing earnings higher than predicted. Its net earnings were 65 cents per share, up from the 57 cents per share earned in the fourth quarter of 2012.

More good news comes with the company’s announcement of its plan to buy back a full $5 billion in stock, signaling the company’s optimism and confidence in its future business strategy. Part of this future strategy may include spinning off PayPal into its own company if investor Carl Icahn (Trades, Portfolio) gets his say in the matter. The payment processing service is growing at an increasingly faster pace and soon may overtake the company in sales. In the last quarter of 2013, PayPal accounted for nearly half of Ebay’s total revenue.

Shifting from full ownership to a mutually beneficial partnership structure could allow for PayPal to expand further, a potentially great situation for current stockholders. However, Ebay has expressed some resistance to Icahn’s proposal and it is not yet confirmed whether it will happen or not.

Icahn brought more intriguing news as he nominated two employees from Icahn Enterprises (Jonathan Chrstodoro and Daniel Ninivaggi) to sit on Ebay’s board of directors. His request is still under review by the company but should it go through, it could help push his proposal regarding the PayPal spin off through. If the company resists his nominations, Icahn has made it clear that he is ready for a proxy fight to ensure his selections go through. Once he gets his nominations to the board of directors cleared, he has every intention of pushing for PayPal to be separated from its parent allowing for greater growth and greater returns to investors.

What else to look forward to

The company currently has a remarkably low debt to equity ratio of 0.17 meaning it is more than capable of meeting its debt obligations, especially in light of its higher than expected growth reported for the last quarter. This news, together with the fact that Ebay’s profit margins have been steadily growing for the past two quarters, indicate a strong financial basis on which the company can continue to grow.

Under the leadership of John Donahoe, the company’s current CEO, Ebay has made more than 30 acquisitions and multiple strategic partnerships over the past five years. Such aggressive expansion and planning for a shifting market in the future has already begun to pay off and shows every sign of continuing to pay off well into the foreseeable future.

Another thing to look forward to is Kabbage which is offering much needed loans to small start-ups all over the world. Most of its clients are e-commerce businesses but it has been expanding its services to brick and mortar start-ups, too. Many of these small companies make use of Ebay to sell their products. In this way, Kabbage contributes to the increase in business traffic occurring on the website.

While big banks and other traditional sources of funding are often closed off to such small businesses, Kabbage has tapped into a previously untouched market, providing a much needed boost to business in our struggling economy. Businesses that would otherwise never get off the ground are now able to expand through sites like Ebay and see real growth. This will also mean substantial growth for Ebay in terms of revenue earned from its online marketplace division.

This new online loan service has started seeking beneficial partnerships with other companies which include both increased publicity and a percentage of Kabbage’s profits. If Ebay agrees to such a deal, it could potentially see numerous benefits as this financial company has a lot of room to grow and a largely untapped market in which to realize that growth.

Conclusions

Ebay has been making a rather rocky upward climb over the past years. Although earnings from its online marketplace continue to grow, the pace is beginning to slow and the company will have to make some changes in order to accommodate for this slowing rate. Investors could potentially benefit from a split between Ebay and PayPal as the latter looks poised to overtake its parent company in the next few years. Both must be prepared to face increasingly tough competition as more and more businesses try to claim their share of the growing ecommerce market.

With the right partnerships and the right strategy, however, Ebay looks ready to hold its ground and beat out competition, making it potentially one of the great momentum stocks of the coming year. Investors would do well to invest now while the company’s stock is still below its 52 week high in order to maximize returns on the investment.

About the author:

Muhammad Bazil
Muhammad Bazil is a financial journalist and editor for a variety of websites, public policy organizations, and book publishers. He has written hundreds of published articles and blog posts on topics including budgeting, credit management, real estate and investing. His articles have been featured on the homepage of Yahoo!, MSN and numerous local news websites.

Rating: 4.0/5 (4 votes)

Comments

formset
Formset - 1 month ago

"Will Ebay's Upward Momentum Continue in 2014?" No ...

The only measure of a publicly listed company’s success is its return to its shareholders. Johnny Ho is now into the seventh year of his “three-year turnaround” of eBay; he’s expended a whole lot of shareholders’ funds with little sign of improvement—except to his personal wealth.

So, what does the “smart money” on Wall Street think about the progress of Johnny Ho’s delusion of converting eBay into the “Westfield Mall” of online shopping? Well, in late 2007, when the Ho was already effectively in control of eBay, both eBay’s and Amazon’s stock prices were ~$40; now, with the US stock market at an all time high, eBay is still only ~$55 and Amazon is ~$356.

Ah, but what about all the stock splits, you say? Well, there has not been a stock split by either Amazon or eBay since 2005. But let’s then be fair and look at the value of both these entities since their IPOs, taking into account their stock splits:

eBay: 3 x 2:1 and 1 x 3:1; ie 9 x $55; equates to a current sans-splits value of ~$495
Amazon: 2 x 2:1 and 1 x 3:1; ie 7 x $356; equates to a current sans-splits value of ~$2492

The fact is, Johnny Ho has been an disaster for just about all concerned: since the Ho arrived on the scene, eBay’s long-suffering long shareholders have, relatively speaking, been going backwards—at a quite steady rate of knots—notwithstanding the nonsense that constantly streams from the eBay Dept of Spin …

The only people making any money out of eBay are Johnny Ho and the gaggle of like-bodied headless turkeys that he has surrounded himself with, and with whom he apparently spends all day, in the eBay executive suite, blindly running around in circles, as they hallucinate about how they are going to re-invent the eBay marketplace as the “Westfield Mall” of online commerce for every leading retailer, brand and manufacturer across the world—Dream on, Johnny Ho …

The real question is, just how much longer are eBay’s major institutional investors going to let the Ho turkey avoid the Thanksgiving dinner table with such continuing poor results, and increasingly bad consumer responses in the media about which not even all the hot air generated by the eBay Dept of Spin can counteract?

I also have to wonder if Pierre Omidyar has ever thought about just how much more fabulously wealthy he might now have been sans all the damage being done to the eBay marketplace by Johnny Ho. Omidyar’s current worth of ~4.7 billion dollars may well have been a great deal more; indeed, had he, in August 2007, traded in all his eBay shares for shares in Amazon, he would instead now be worth ~43 billion dollars! Now that, surely, is something for all eBay’s major "long" investors to think about ...

Clearly, the message from the smart money on Wall Street is that eBay Inc. is a "dog" and Johnny Ho is an utterly incompetent dog handler ...

eBay / PayPal / Donahoe: Dead Men Walking ... bit.ly/11F2eas

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