There was an article in Slate last week that compared eBay Inc, Amazon, Yahoo! Inc and Time Warner's AOL to the four horseman of the apocalypse. All four, the article says, survived the 2001-2002 crash and flourished after. And yet, lately, as we all know and as I painfully notice each day I write about Yahoo and eBay, their collective performance has been less than stellar. Far less than stellar.
So why? Why have these four giants disappointed? Mostly, as the article mentions, because they're operating in a mature market. Meaning, while they're still the leaders in their industries, these have become mature markets, which is clearly evident in the financial reports. Margins have hurt operating income that consequently showed decline despite good revenue growth. It's true for eBay, Amazon and Yahoo Q2 earnings.
So the question is whether it's time both companies (management) and investors change their attitudes, the way we look at these maturing companies. The problem is that, while eBay and Yahoo might be mature companies, the industry itself isn't, and these are the first companies in the industry to reach this stage. It would be hard then to gauge what the new expectations should be. For example, growth rates are still quite high, definitely higher than those of other mature companies in other industries and that's only one of the many differences that would require new benchmarks probably.
How, then, should we look at eBay and Yahoo? It's probably a moot question since the process will take us there anyways, as already we see lower ratios and lower expectations. And yet, I'd argue that this whole thing is jumping the gun, as both Yahoo and eBay are working hard on increasing revenue and income growth, each in its own strategy. Given the proper climate, I think they could still surge (provided they deliver of course).
Closing Bell: Stock bulls and dollar death (DDRX,GMCR, PEET, SBUX, EBAY, CI, TECD)
So long peak oil, here comes peak uranium
Black Friday expected to be strong, no promises for Christmas
Reader Comments (Page 1 of 1)
8-02-2006 @ 5:42PM
firemeg said...
I would venture to guess that many "career" sellers on eBay do NOT feel that eBay is a mature market. We are FireMeg.com surely do not feel this way. Many sellers are only beginning to grow their small businesses on the site, yet management seems fixated on thwarting any such efforts by trying to artificially boost earning.
eBay, if it continues down its current path, will be the next Enron - mark my words. The lumping of completely different businesses under the eBay umbrella (paypal, skype, rent.com, shopping.com, half.com, eBay express, etc.) along with damage control fee hikes is eBay's current business model. Meg Whitman is doing just about all she can do assure that each consecutive SEC filing shows at least a bit of growth. The growth shrinks every quarter.
Whitman and eBay are banking on all of their acquisitions, such as Skype, and their investments in the Asian market to assure that some form of growth continues. However, by doing this, Whitman and gang have alienated many career sellers with their constant fee hikes, site and policy changes, and their inability to control fraud and site glitches. Sellers frankly are pissed. The sellers say they built the marketplace and now it is being taken away from them. The fees the sellers pay is in no way being returned to the main auction site, but rather diverted into many and varied acquisitions of internet capital.
8-02-2006 @ 9:01PM
Mr. noitall said...
Well I don't want to say I told you so but,......
I TOLD YOU SO!! If you read the comment I made yesterday under your story (UBS cuts eBay's target price), I said Starbucks could drop like 10% in one day, if they disappoint with their earnings report.
Well I see it's down 9% in after hours trading. Looks like I hit the nail on the head,lol. Please tell Sheldon about my accurate prediction. And I think you're right about investors changing their attitudes about eBay & Yahoo. They should sell those two stocks & buy something else.
8-02-2006 @ 11:41PM
David said...
I use to be an active seller on Ebay with an Ebay store for years and i've noticed prices have consistantly gone up. They haven't even added that many special features. They gave us Ebay Express which didn't meet my expectations at all. I hope they get a reality check soon, toss in some new features, decrease some fees and instead of purchasing new properties reinvest into making a more stable marketplace. I still haven't seen what Skype brought to the table...
8-03-2006 @ 1:52AM
Jay Beswick said...
ebay has become the worlds largest pawn shop dealing in stolen property. 10 stories a day of recent have come out detailing associated crimes. Piss off enough sellers and add thousands of hot items being traded and sold and you have one bumpy investment.
FROM AP today;
Shoplifting ring used heroin addicts and eBay
ALTOONA, Pa. Pennsylvania's top prosecutor says authorities have broken up a pair of shoplifting rings.
He says the rings' masterminds paid heroin addicts to rob retail stores around Altoona. They then allegedly used the online auction site eBay to resell the stolen goods.
The four people involved face dozens of charges, including conspiracy, retail theft and criminal solicitation.
Attorney General Tom Corbett says "the defendants took advantage of the desperation of local drug addicts." While the addicts were paid as much as two-thousand dollars a day, Corbett says they "got sicker and stores were pushed to the brink of closing."
One local sports store reported losses of up to 139-thousand dollars a year.
8-03-2006 @ 9:58AM
aldo said...
I'm not so negative about Ebay. A few years ago, I was the only one using it. Now all my friends (even the "old" ones) know about it and they shop for the most strange or common things. I still find some very good deals, and I've sold a couple of small things this year with a decent profit.
So IMHO the main business is in good health and will continue like this - they are good and they are near monopoly in their sector (and this for user's choice, not for bad things such as for Microsoft...)
Paypal is a money foundry: their costs are very low, they make profit on each transaction, and they are expanding in Europe (due to ebay but not limited to... you open a PayPal account for ebay then you use it also to shop elsewhere...).
The only thing that I am skeptic is Skype (they paid it too much), but it is possibly a very large market, and as for PayPal once it is running, costs are very low.....
I know few other companies with a so strong brands, strong position, and so low operating costs... at the current price the EBAY stock is really a bargain.