At the core, he observes, EBAY's marketplace business -- which he admits is maturing -- is "a wonderful cash flow generator with powerful network effects that create defensibility." Further, he adds, even though the marketplace business is no longer the high growth machine that it once was, it should continue to grow at low double-digit rates for a long time to come.

He observers, "Where EBAY management has impressed us -- and this is where we think the overall story gains 'legs' -- is in their continued ability to make smart and timely acquisitions while leveraging its massive marketplace user base."

The first example of this, he notes, was the company's acquisition of PayPal which he says has now become a cash cow. Adding to this, he mptes os the 2006 purchase Skype, a deal that he says initially generated "tremendous investor skepticism."

Looking back on that deal one year later, he says, the acquisition of Skype now looks "genius to us."

In addition to these major acquisitions, he notes that EBAY has made a number of smaller acquisitions, such as Rent.com, Shopping.com, and StubHub. Each of these, he notes, fits into the company's marketplace focus, while "leveraging EBAY's mammoth user base and other strengths."

Martin also likes that the company holds $3.5 billion of cash and is continuing to "aggressively" buy-in stock. He says, "After purchasing $1.7 billion worth of shares in 2006, EBAY announced an additional $2 billion buyback on its last earnings call."

He considers this a "wise use of EBAY's prolific cash flows, and a reflection of the stock's attractive valuation." He concludes, "With a little luck, we believe that EBAY can deliver low to mid double-digit annual returns over the next 3-5 years, with fairly limited downside risk."

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