Auction Blog

• Part I - Donahoe opening remarks
• Part II - Paypal
• Part III -  eBay Marketplace.
• Questions sellers wanted to ask (collected from twitter) 
• Part IV - Q+A 
• News round up 
• Wall St. Analyst' thoughts (this post you are reading) 
• What does Analyst day mean for sellers (coming soon)     

Usually after an event like this the stock analysts issue reports.  These reports include interesting nuances that in many cases were picked up in side discussions and what-not.  It's also interesting for eBay sellers to understand what's going on as frequently marketplace-moving changes are introduced at a high-level at these events.  Strategically, understanding where eBay is going can help sellers plan their strategies for the coming year(s) and plan for where eBay should be in that mix.

Analysts tend to use these opportunities to also change their view on a company.  Analysts have some combination of a rating (buy, sell, hold, underperform) and some have a price target.  Movements in these can move markets of course, but I also look at them as signals.  In this case, everyone in the eBay world is looking for some sign of the bottom of the marketplace's problems and when analysts get bullish that would be a strong signal.

Here's a quick recap of the analyst notes I've seen so far this am.  PT is an abbreviation for Price Target and as a point of reference the stock is in the $11-12 range right now.  These are in the order that I received them and the bolding and comments marked (editorial) are my own.  I've put the analysts into three buckets based on their ratings - Bullish, Neutral, Bearish.

• Marianne Wolk - Susquehanna (say that three times fast) - $18PT  (Editorial: Marianne had lots of paypal that I didn't put here as we focus on the marketplace biz)
  •  We believe there is value to the core eBay
    franchise, which has more than 86.3 mln active worldwide users as of 4Q08 and
    ~17-18% domestic eCommerce share in 4Q08. Many of these users are loyal
    buyers/sellers, and with stronger company actions and a more benign economic
    backdrop, we believe usage and monetization levels could improve in time
    (albeit our estimates assume this is not until 2010).   
  • The major change we heard at the analyst day is
    that the company expects to incorporate more classified listings and
    advertising with the search results for users. (Editorial - more advertising - GREAT!)
•   Heath Terry - FBR - OUTPERFORM - $16PT
  •  While
    there is significant execution risk as the company attempts to create a
    “New eBay”, at less than 6x forward EBITDA we believe investors are
    being paid to take that risk. We believe the stock represents an attractive
    long-term risk/reward, as our $16 price target equates to a 6x EV/EBITDA
    multiple.  

• Spencer Wang - Credit Suisse- PT - $15 - Neutral
  • Overall,
    we are encouraged by management’s initiatives to maintain its role as a key
    connection between buyers and sellers of goods, to extend PayPal’s scale, to
    “transform” Marketplaces, and to accelerate growth at Skype.   
• Gene Munster - Piper - Neutral - no PT
  • We are incrementally more positive on eBay, given potential
    changes to the marketplace platform, which could come late in
    2009, according to the company. We remain Neutral on EBAY shares, as
    ultimately, we need to see changes to the platform that improve the
    user experience and arrest market share losses. 
• Collin Sebastian - Lazard - HOLD -  
  •  2011 targets provide an optimistic
    scenario assuming a rebounding economy. Highlighting the Analyst Day, management
    provided a range of 2011 revenue and margin targets, under the assumption
    that the economy rebounds next year and that growth in PayPal, Skype, and
    marketing services continues to offset the declining auction marketplace.
    In the near term we expect 2009 to be another challenging year for eBay in
    the midst of transition in a weak economy 
•   Imran Kahn - Neutral - 
  •  …we continue to be cautious on the story, as many of the announced
    changes may not fully materialize until 2011. Additionally, we believe
    competition from Amazon and other online commerce sites could create further
    risks to the company’s financial targets. 
•   Jim Friedland - Cowen - Neutral - 
  •  (1) the company is actively addressing the
    challenges in its core marketplaces business, but we think its three-year
    revenue and margin projections are too high; (2) PayPal is well positioned to
    demonstrate continued growth; (3) Skype is for sale in our view; and (4) a
    dividend is unlikely and management seems to be unwilling to repatriate its
    cash position for a buyback due to tax implications. 
  •  We think competition from alternative channels,
    such as Amazon and Google Search, is a serious threat to the marketplaces
    business. Amazon and Google offer attractive seller pricing (it is free to
    upload inventory to Google's product search database). Further, we believe the
    superior buying experience on Amazon and search experience on Google reduces
    the value of the eBay platform for buyers and sellers. Even though eBay is
    dedicating significant resources to enhancing search, improving the user
    interface, and other buyer/seller features, we believe it will be difficult for
    the company to catch up to Amazon.
•   Mary Meeker - Morgan Stanley - equal-weight
  • eBay noted 2009 marketplace GMV should grow slower than market (we assume -12% Y/Y); 2010 should grow with market (we assume +8% Y/Y) while 2011 should grow faster than market (we assume only +4% Y/Y).  
•   Derek Brown - Cantor - HOLD - $13 PT
  • On the one
    hand, we were very impressed by mgmt, most (if not all) of whom were
    presenting at his/her first Investor Day; its willingness
    to admit past errors/oversights in strategy, product development,
    technology and customer relations; and, its unyielding
    commitment to drive “foundational” change within the core of eBay
    (both its culture and Marketplace franchise); on the other, it
    seems clear to us that eBay's revitalization efforts remain very
    much a work in progress and we think hopes for a healthy
    recovery by 2011 may be premature.
• Ben Schachter UBS - $14 PT, Neutral  
  • Management expects the Marketplaces division to grow
    slower than the market in 2009, with the market in 2010 and outpace the market
    in 2011. EBAY expects to bring large
    scale changes to its Marketplaces division that will take time to implement.
    The company is attempting to improve its user experience by expanding efforts
    to include more liquidation/out-of-season products and by overhauling its
    search function to bring more relevant searches to the forefront (highlighting
    inventory from across the EBAY ecosystem). Even if we assume they can execute
    on this strategy and stabilize the marketplace, it will take time and guidance
    does not imply real growth until 2011. We continue to remain cautious on
    management’s ability to execute and expect the stock to reflect more near-term
    execution than promises the company makes about 2011.   
• James Mitchell - Goldman (Golden Slacks as Cramer says) - $14 PT  - Neutral  
  • We view
    management’s marketplace objective of focusing on the “secondary”
    (used/discontinued/discounted/ end-of-season items) rather than “primary” (new/in-season
    items) category as a rational strategy for minimizing head-to-head conflict
    with Amazon. However, “secondary” may account for a declining portion of
    overall e-commerce over time, potentially condemning eBay’s marketplace to
    perpetually under-grow the e-commerce market.   
• Christa Quarles - TWP - Market Weight 
  • We believe eBay's
    strategy makes sense and the actions the company has taken thus far (changing
    management, putting technology at the centerpiece, strategically cutting costs
    and reinvesting in growth) are in the right direction. However, it's still
    unclear if core marketplace will look as management defines it in 2011 (e.g.
    the margins may be 25% not 35-45%) and it may take much more time to fix,
    particularly if the macroeconomic environment stays weak. We remain on the
    sidelines, but could start to see some value investors with long time horizons
    starting to get more interested in the story.  

• Justin Post - Merrill Lynch - PT - $13 - UNDERPERFORM
  •  Upbeat presentation, but one message from the
    day was that eBay was still early in their turnaround and that things would get
    worse before they would get better. 
•   Jeetil Patel - SELL - $11 PT
  • While filled with long- term optimism, we
    thought the analyst event lacked near-term reality with respect to the current
    deteriorating fundamentals. In light of no near-term (2009) guidance,
    anticipate acceleration in growth, competitive pressures and economic backdrop,
    we think it's difficult to put much credibility into the 3-year plan. We think
    investors should gauge eBay against near-term performance. 
  •  Near–term, the marketplace business is expected to
    underperform industry growth trends before flattening out next year and
    reaccelerating in 2011 – representing an optimistic view from eBay, we think .
    Clearly, this business represents the cash cow, and risk remains on declining
    demand, high seller commissions and lack of interface changes. We think the
    Skype unit is actually performing well, and management should hold on to this
    business model.   
    
  •  The problem in the core lies with lack of demand, seller fees running too high and an e-commerce interface that is inconsistent with the industry norm (think product orientation, not listings metaphor). It is quite difficult for sellers to generate cash flows if they have to discount pricing (relative to other sites and direct) and maintain in-line to above-market commissions on selling on the platform, especially with weakening demand.  

Seeking Alpha Disclosure - I am long google and Amazon

 

Most of the press took eBay's lead and talks primarily about the PayPal opportunities.

• ($ub required) The WSJ has an interesting piece out called 'eBay retreats in Web Retailing'.  In it Geoff covers the fact that eBay basically said today they won't compete head to head with Amazon on in-season product. Yours truly has a quote in here.
• NYT has a blog post by Brad Stone here.  Brad interviewed JD and this quote was concerning.  I can guarantee you that Amazon sees eBay as a competitor: ““Everyone is saying, it’s eBay versus Amazon. We aren’t trying to be a retailer. We’re not trying to fill our shelves with every new iPod. If our sellers can find new ones and resell it, that’s fabulous.””
  •  There are two possibilities here: 
    •  JD is aloof and doesn't want the press to think Amazon is a competitor.
    •  eBay really doesn't believe Amazon competes, just like McKinsey told them that google isn't a competitive threat.  Either way, it's a weird way to approach this.
      • Maybe eBay hasn't seen the marketplace that Amazon is operating over there?  Last I checked, I think they may have ipods that are both new and used over there -oh, but they are a retailer so that's different.  Crazy right?  Well read that quote again.
• AP story is here - 
  •  JD quote - “..But we were faced with the innovator's dilemma. We were the largest, biggest, successful, profitable, and we knew we needed to make changes but the changes we'd made were always incremental because we didn't want to upset the apple cart,” he said.” 
  • Analyst quote - Derek Brown (aka Dr. Brown), an analyst with Cantor Fitzgerald, said he got the sense from the presentations that the changes eBay implemented last year didn't quite yield the results it had hoped, and that eBay is now speeding things up in an effort to bring the market back to them.”Are they making the right changes in the right order and will those changes bear the fruit they hope? It remains to be seen,” he said.  
• Reuters story is here - JD quote: ““Its (paypal) potential is enormous,” Donahoe told Reuters. “It's not just a stepsister …, it's a second core.”  
  •  Analyst quote (shout out to eBay Strategies friend - SteveW!) “The question is: will those changes make the experience competitive with other online retailers like Amazon or Zappos who aren't standing still. That's hard to say,” Pacific Crest analyst Steve Weinstein said. 
• FT is here