Robert:
I don't like to hype eBay one way or another.
Before it went public, I presented an argument for eBay being worth $10B in five years.
It is almost worth that now, according to the stock market.
However, as good a model as I think the company has, I see no reason to pay today for what a company MIGHT be worth in 5 years, IF everything goes extremely well.
Sure, if some completely irresponsible analyst comes out and says eBay should be $400 a share, it could go up considerably.
That won't change the dynamics of the company, though.
The fact of the matter is that eBay is in a lull right now. Auction counts over the past 10 days have been very disappointing. Some people attribute this to Christmas. Funny, I thought Christmas should be hopping.
Let's look at this logically:
1. eBay derives about $1.40 from each auction.
2. Let's assume that eBay ends up deriving an after tax profit of 25 percent. This would translate to $0.35 per auction.
3. At 50 million auctions per year, that comes to $17.5M in annual profit.
4. eBay is currently worth almost $9B.
5. Assuming a 50:1 price/earnings ratio in 3 years, eBay would need to generate about ten times the current rate of auctions it sees today, meaning 10 million ongoing auctions.
Is this possible?
Yes.
Is it reasonable?
No.
Why?
Because, there will be a saturation point.
With 100M households in the USA, that would point to the average household purchasing 5 items per year from eBay. (Yes, this assumes that all activity is from the United States, which is not reasonable. But I would expect 80 percent of activity to come from the USA. That would still mean 4 purchases per year from the average US household. On the other hand, it also assumes that all households have computers and have Internet access. Right now, only about 50 percent of US households have computers, and probably less than 50 percent of these are getting on the Internet.)
I am beginning to think that OnSale is a safer buy.
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