James, I will not disagree with you, because I also think eBay is overvalued by at least 2:1.
But, I will caution you or anyone else against shorting this stock.
By all measures, Microsoft has always been overvalued. I remember thinking this back in 1990, when it was trading at $4 or $5 a share, adjusted for splits.
But, even using conservative techniques, Microsoft is worth at least $50 to $60 a share (it currently trades for almost $110 per share).
So, I might have been right back in 1990, but if I had shorted and held the short, I would be in very deep doo-doo now.
Let's also not forget that eBay is spending money like crazy to promote themselves right now. At any point in time, eBay could easily decrease or stop this spending and attain extremely high margins.
Here is a very plausible scenario for eBay:
1998 - $47M in revenues
1999 - $135M in revenues
2000 - $350M in revenues
2001 - $800M in revenues
2002 - $1.5B in revenues
By 2002, after tax profit could easily be $300M to $500M.
You may say I am crazy, but I have been pretty much right on about my eBay forecasts. Several months ago, I said they would achieve one million in weekly auctions in November. With 900K weekly auctions, that looks like a very plausible scenario.
I also think that eBay has the online person-to-person market sewn up already. Yahoo is flailing offering free auctions, and doesn't seem to have the brain to do what is necessary to truly intrude on eBay's turf.
I believe, for example, that eBay could easily halt advertising and remain the king forever (assuming the competition continues to be stupid).
That means that profit margins could be huge.
So, there is an argument that in 4 years, eBay could have $500M in profits, while growing at 50 percent per year.
What is the potential here? It is so amazing, it is not even funny. Look at the US alone. 100M households. With at least $100 each to get rid of each year. Probably more like $500. 75 percent will be online within 5 years (OK, at least 50 percent).
If eBay gets 50 percent of the market, the numbers are huge. Who cares if you have to give up 5 percent of a sale to get a decent price for your stuff? That's a lot better than wasting your time getting next to nothing.
Then, consider the rest of the world. The US comprises less than 5 percent of the world's population. With the cheaper PCs, and even cheaper Internet devices, it's not hard to imagine that half of the world will be online in the next 10 to 20 years.
The bottom line: eBay may be significantly overvalued now, maybe by a factor or 2 or 4, or maybe even 10. But, it will take them about 2 years to make up for that at their growth rate. (Or, if you think they are only 2x overvalued, less than 6 months.) |
