Firemeg, who, if the name is any indication, is not a supporter of eBay CEO Meg Whitman, provided this well-thought out response to a blog I wrote on eBay (NASDAQ: EBAY). Firemeg made some interesting points.Firemeg said:
In its current state, I would never buy ebay stock to hold onto. The numbers you have given are straight from eBay's mouth. 220 million users? I have about 30 eBay ID's, how many unique users are there and how many new unique members were there in 2006, and how many of them were active on the site? - Those numbers mean a lot more than the number of users.171 mil Skype users? Same here, how many signed up as paying customers? Since subscriptions were $15 or $30 for the year, and only $65 million was generated in the Q4, it's obvious that most users did not subscribe (especially when you figure that part of that revenue was generated in per minute calling).Shopping.com is a very low traffic site without very good user reviews.Right now eBay is deriving much of its growth from fee increases and listing sales. Add the Skype subscriptions to the listings sales and fee increases and subtract them from the revenue and I'd bet you would see a loss.
My only criticism is that the response could have avoided hyperbole. Although most users have multiple accounts, having 30 user accounts is a bit unusual.
Regarding Skype, applying annual subscription fees of $15 to $30 per year and applying that to only $65 million in revenue (or $250 million annualized) brings you to about 8.3 million paying users--well below the 171 million registered users that eBay management cited. However, management said during the conference call that it has not done a good job monetizing Skype yet and that it will be an area of focus in 2007. This means there is upside here, as Skype is very much in the early stage of its evolution.
Regarding eBay's growth being due to increased fees and listing sales, that was a clearly a defined management strategy during 2006 -- to keep the more profitable sellers and squeeze out the marginal ones, or money losing sellers. Success in this strategy should be seen in margins, which was the case in the December quarter results.
We will see who proves correct by eBay's stock performance during the next twelve months. Please keep the comments coming!
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