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Ebay is a great stock, trading at bargain price. Even in the unlikely event of an economy harsh landing, EBAY could be a safe haven November 16, 2007

Posted by deminvest in Defensive Stock, ebay, growth stock, Internet stocks, investment, low cost, risky investments, Single stocks, stock I own.
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EBay, you don’t fool me!

ebay_fool.gif

You can fool big finance gurus, you can fool the two newly made billionaires Zennstrom and Friis who sold Skype to you, but not me, because I am a simpleton and I do think simple.

EBay shares are in free-fall: -17% in a month. Everybody is selling because EBay posted losses for the first time since 1999… Tere is just a little detail: those losses don’t exist! Those losses were written by someone on some piece of paper to fool someone else. Reality is that Ebay

Those losses are not dollars. While someone was writing those bullshit (I tried not to use this word, but I am getting angry at whoever invented the stupid write off) losses, wagon-loads of real dollars were entering EBay’s bank accounts.

Those losses are fake because they come from a ridiculous write off:

EBay paid 2.6 Billion dollars to buy Skype. Now some “genius” at Ebay decided $2.6 Billion had been too expensive for World’s leader on VOIP communications. This “genius” decided to write off $ 900 Million from Skype value and had to pay $530 to skype sellers. The write off is just ridic0ulos. Skype is World’s absolute leader in Internet Telephony. Skype has 246 million users Worldwide, growing at fast pace. Skype is market leader for Internet Telephony, a market in great expansion.

Large players are forming alliances with Skype: Nokia is producing Skype enabled telephones, 3 Mobile company is offering skype calls over cell phones.

Skype already had 7% of international phone calls, with leadership in that huge market. Telephony is an industry with revenues probably at least 10 larger than the whole Internet, and Skype is absolute leader in VOIP telephony, which is the telephony of the future.

Considering that Microsoft valued lousy Facebook 15 billion , which isn’t leader in anything and is little more than yet another silly dating site, after Friendster, Myspace, Linkedin and whatever else will be found cool by female and male students in the nex year, how could those blind Ebay accountants say something stupid like: Skype at 2.6 Billion is overvalued.

I am not sure why they did that stuid move, but I have a theory:

When Ebay bought Skype, the contract said they should pay to the two founders
Niklas Zennstrom and Janus Friis
and to other Skype shareholders:

$1.3B cash

+ $1.3B stock

+ $1.5B earn-out linked to performance targets set to Skype.

= $4.1B

Now the point is that Ebay’s Meg Whitmann DID NOT WANT to pay the last $1.5B!

How did they manage NOT TO PAY THOSE 1.5 B? Simply Ebay did not help too much Skype to reach the targets, so Niklas Zennstrom and Janus Friis, who had been running Ebay till last month, did not get the 1.5B.

Of course they were angry and they quit slamming the door. I also have suspicions that those targets were not too far. Why? Simple again… there is this little tiny news: “EBay also paid certain Skype shareholders $530 million to settle future obligations”. Why did they pay to “settele future obligations”? Beacause Ebay wanted to avoid one risk:

Niklas Zennstrom and Janus Friis, could have sued Ebay for not letting Skype reach the targets or for not aknoledging that part of those targets had been reached.

To make the supposed “Skype’s disappointment” more believable, Meg Withman also did this ridiculous write off.

But reality is the EXACT OPPOSITE:

1) Skype had 53 million users when Ebay bought it in September 2005 . Skype has 246 million users now

2) Skype was losing money every month at the time of the deal. It is making money now.

In my opinion skype is doing wonderfully. Don’t believe me? then look at those tables from Wikipedia:

Date Total user
accounts
in millions
Skype to Skype
minutes
in billions
Skype Out
minutes
in billions
Net revenue
USD
in millions
Q1 2006 95 6.9 0.7 35
Q2 2006 113.1 7.1 0.8 44
Q3 2006 135.9 6.6 1.1 50
Q4 2006 171.2 7.6 1.5 66
Q1 2007 195.5 7.7 1.3 79
Q2 2007 219.6 7.1 1.3 90
Q3 2007 245.7 6.1 1.4 98

It was reported that 10,140,836 concurrent Skype users were online as of October 30, 2007.[15]

Date [16] Users online Days
200710-15 10,000,000 259
200701-29 9,000,000 82
200611-08 8,000,000 71
200608-29 7,000,000 155
200603-27 6,000,000 66
200601-20 5,000,000 92
200510-20 4,000,000 155
200505-18 3,000,000 93
200502-14 2,000,000 117
200410-20 1,000,000 418
200308-29 0

To the question what does Skype have in common with Ebay and Paypal?

I answer:

absolute, uncontested leadership.

  1. Ebay is uncontested World leader of Internet Auction (which now make real auction look like an historic ruin)
  2. Paypal is absolute leader in Internet Payments (unfortunately real banks are still alive. Some people still use them to pay 🙂 )
  3. Skype is absolute leader in Internet Telephony (yea Telcoms are still alive, but in shaky health… Will we still want to pay for their expensive calls when we’ll be able to call each other on Skype mobile for free on our town’s Wifi aceess? )

Ebay is a major player pushing for future lowcost society, where we:

  1. we decide the price we are willing to pay buying cheap on auction rating sellers,
  2. we transfer money cheap
  3. and we call cheap when not for free.

Nothing can stop us, the people, and if a company helps us get what we want, we will push it to success…

BTW…

EBAY is a growht stock and at the same time also a defensive stock:

  1. It has proven to be defensive during the bubble, as compared to Nasdaq and Dow Jones
  2. Its business model allows Ebay to perform well even if the economy is so-so. People who want to save money may prefer to buy used on Ebay rather than new in the shops and will definitely want to call free on Skype

Now add all that rosy picture to the fact that Ebay is amazingly cheap now:

  • Forward P/E 19.4
  • Quarterly Revenue Growth (yoy):30.40%
  • Total is Cash $4B, no debts, about 10% of the market Cap: when we buy Ebay, 10% of what we spend is for cash. Excluded the cash, Forward P/E would be 17.5.

I am forgetting all my investing strategies this time! I’m buying Ebay like crazy. As the price goes down I buy more and do everything wrong for this stock that I consider an absolute champion.

When I do so usually Wall Street Gods punish me… Let’s hope it won’t happen this time!

Comments»

1. Andrew - November 17, 2007

Interesting… I’ve been looking at BIDZ lately. I’ve bought from them. Service has been excellent for me, prompt to respond any emails, and its “real time” auction makes it cool and wanting to bid more! It still has plenty to grow I’d say, specially on different market niches like the spanish-speaking countries.

But I’m not fully understanding its Trainling P/E vs Forward P/E:

38.30 vs 33.7

eBay’s: 275.13 vs 19.72.

Why do you think this big difference between eBay’s P/Es vs the low difference in BIDZ P/Es.

Apologies if this is to simple to answer :-). I’m not that experienced, but from the numbers bidz ain’t looking bad.

2. deminvest - November 19, 2007

Andrew, thank you very much for suggesting me a stock I did not know. BIDZ seems a nice stock, showing good growth of earnings and revenue. It may be a good buyout target for Ebay or for some company that wants to disturb Ebay’s market.

Still I think that I prefer EBAY over BIDZ, because I see EBAY’s rosy future coming from Paypal and Skype rather than from auctions. I don’t see on-line

BIDZ’s Trailing P/E vs Forward P/E: 38.30 vs 33.7 means that the company is expected to grow its earnings by a small amount.

EBAY’s Trailing P/E vs Forward P/E: 275.13 vs 19.72 is only
due to one time write off of Sky value which hurt earnings, only for this quarter. Since this one time event won’t happen again, earnings will go to usual since next quarter.

3. deminvest - November 20, 2007

Here are my “out of strategy” crazy Ebay buys:

EBAY eBay Inc. Buy Nov 8, 2007 32.00 $32.86
EBAY eBay Inc. Buy Nov 5, 2007 30.00 $34.24
EBAY eBay Inc. Buy Oct 29, 2007 28.00 $36.72

In a few days I bought 90 Ebays spending $3125.48
I already had 63 that I had paid $31.29 each.

Now I own 153 EBAY shares that are worth I paid $5,078.15 and are worth $5,000.04 in this minute.

EBAY is now my first holding. This is how I trust this company.

4. Kevin - November 24, 2007

I agree. I think Ebay is a great company. I don’t know anyone that hasn’t used Ebay to buy things. I’m going to buy shares next month.

Thanks for the tip for Bidz.com as well! I’m in the market for an engagement ring and will be checking out that site. I have tested it by buying a cheap stainless steel ring. If all goes well I may start a small position in BIDZ.

5. deminvest - November 26, 2007

Congrats Kevin!
But… please don’t sell all your stocks to pay for the ceremony, the furniture the honeymoon… 🙂

6. Kevin - November 27, 2007

Don’t worry if my girl found out I spent a lot on a ring she would be angry at me. She is more frugal than me. She would rather have a large stock portfolio than a large diamond. That is why I am looking around BIDZ.com.

7. deminvest - November 27, 2007

hmmm my girl would love to be angry for such kind of reason… Also she sees investing in stocks very similar to gambling in Casinos. The worse if that sometimes I wonder if she’s right 🙂

8. Kevin - December 6, 2007

I know this is post on EBAY but BIDZ was mentioned. Have you seen what has happened to BIDZ in the last week? It was at a high of $22.50 and plunged after a report came out (from someone shorting the stock) about how bad the business was. It is now at $10.19. When I first looked at the price I thought it was steep and then did some research on the company. I bought a few items. No diamond ring from them. They could do some work getting better quality diamonds. I did buy some earrings and a bracelet for a relative for Christmas and was impressed with the quality.

I think this is a good buy price. I would expect a rise after they post their 4th quarter income statements. They have already been posting sales records this shopping season and I don’t see any reason why it would stop.

9. Kevin about Bidz.com (BIDZ). Is it a bargain? « Democratic Investments by the people for the people - December 7, 2007

[…] stock, ebay, growth stock, investment, nasdaq, stocks. trackback Kevin’s comment on a previous post about Ebay, is so interesting that it deserves the attention of main […]

10. Albert - January 25, 2008

I am not that worried about the markets now. Most of the bad news are out now. I think that we are in some kind of flat correction.

11. Deminvest - January 25, 2008

I hope so Albert. I hope that there won’t be the recession some analysts do fear. Fed and Bush are acting fast. I hope they will succeed.

Still Ebay is more and more undervalued.

12. cashman moneymaker - January 27, 2008

The stock market is like playing roulette with dice….sometimes it works, most of the time it doesn’t

13. deminvest - January 27, 2008

@cashman: I agree with you when you say : “The stock market is like playing roulette with dice”.

But I disagree with the second half of your sentence.

Historically “most of the time it works, sometimes it doesn’t”.

Companies that are part of stock-market on the average build up value. Roulettes on the average destroy vaòue for players at every turn.
Over the years the World went from horse-pulled chariots to Jet airplanes, which are more valuables and belong to public companies and their shareholders.

14. Mark Crisp - February 3, 2008

Ebay like any other stock is only a good stock if it moves up in price. I have seen far too many stocks drop and keep dropping. At least wait for it to recover.

15. I was right! Skype’s write off by EBay was fake… We should start a class action! « Democratic Investments by the people for the people - April 2, 2008

[…] November 16, 2007 I posted on this Blog: “EBay, you don’t fool me! Everybody is selling because EBay posted losses for the first […]

16. EBAY CEO John Donahoe IN AN IDIOT: IT IS OFFICIAL NOW. BTW… MEG WHITMAN is an idiot too « Democratic Investments by the people for the people - May 10, 2011

[…] In November 2007  the idiot Meg Whitman wrote off $900M saying they had paid Skype too much. This stupid fake and idiot write-off resulted in Ebay posting its first losses ever. EBAY shares los… […]


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