A long time ago, in a market far away, eBay (EBAY) appeared on the scene. At first, eBay was a shopper’s heaven, particularly for those seeking second-hand items.
As the internet matured and more and more retailers added an online presence, eBay became a kind of supplemental marketplace. Then the gray market sellers appeared.
After awhile, eBay just kind of devolved into this catch-all online marketplace. Now, some might look at its $2 billion in operating profit, war chest of billions in cash and consistent cash flow and ask why I don’t like EBAY stock
Other than it being too pricey — selling at a price/earnings-to-growth ratio of 2 when it’s only growing at 10%-12% — I actually don’t have much problem with EBAY stock. I have a problem with eBay as a company, and by extension, EBAY stock.
Two things could really harm eBay.
The first is that eBay has alienated its core customers — the sellers. For reasons that never made any sense to me, in 2008, eBay stopped permitting negative customers reviews on buyers. This was enormously stupid. The entire eBay system worked until then because your public rating meant EVERYTHING.
Buyers may have complained about negative feedback that was undeserved, but that problem was solved by permitting rebuttals. Then others could simply decide who was right, who was insane and if it was just a misunderstanding.
The result is that sellers are screaming about fraud. A friend provided me with all the details and documentation about an eBay member with the screen name “Kevino9,” who defrauded her.
Kevino9 purchased a $450 professional microphone from my friend. She sent it. Upon receipt, he immediately complained and threatened to hit her with negative feedback unless she refunded the money and paid for return postage. She gave in, refunded the money, and Kevino9 sent back an empty box.
Multiple complaints to eBay got her nowhere. In short, eBay flipped her off and told her pound sand. This, even after she corresponded with others who had also reported the fraudster.
The result: EBay willing permits Kevino9 to continue his activity on the website with no repercussions, but the longer this goes on, the more sellers will abandon eBay.
The other issue is much more serious. EBAY’s marketplace revenues are declining, some of which may be due to openly permitting fraud. Meanwhile, the PayPal division has been growing and accounts for all of that 10%-12% growth I mentioned earlier.
So, when eBay spins off PayPal, you can kiss growth goodbye. EBAY as a stock will be a no-growth relic of Web 2.0. How much of EBAY’s $6 billion in debt will be left with the parent and how much PayPal?
Jeff Reeves agrees with me and said, “Let’s start with the simple truth that eBay is much less attractive after a PayPal spinoff — and perhaps isn’t worth your money. Yes, eBay reported stronger Q1 numbers a few weeks back … but the marketplace biz is actually in decline, and PayPal is what juiced those numbers.”
Initially, eBay was a nifty idea. Now, eBay is basically like shopping in a run-down second-hand store offering junk and used goods but not in the good way that it used to be.
I have more trust buying used goods these days from Amazon.com (AMZN), where I’ve never had a problem and don’t have to worry about some fraudster ripping me off and being permitted to stick around.
As of this writing, Lawrence Meyers owns shares of AMZN.
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