eBay Corp. (EBAY)
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    eBay Corp. (EBAY) eBay Corp. (EBAY) Document Transcript

    • US E Q U I T Y F L A S H R E P O R T eBay Corp. (EBAY) Investment Opinion: SELL 28 July, 2003 eBay Corp. YTD relative chart (EBAY/NDX) Analyst – Yogendra Singh Price (USD) Stock Performance YTD 110.75 67.60% Market Cap (USD Bil) P/S 35.15 23.98 EPS, TTM(USD) P/E 1.15 96.30 Dividend, (USD) Dividend Yield 0 N/A 52 week High (USD) 52 week Low (USD) 117.86 50.22 In spite of the good sales growth performance of Investment opinion the company and the expectation that this trend would continue, I am bearish on the company on Continuing the pattern of recent quarters, eBay has account of valuation concerns. The stock has come out with good results. The company has appreciated by around 71% in the 2003 and is reported strong sales growth of 6.9% in sequential currently trading at a P/E and P/S of 96.3 and 23.9 and 91.3% in YoY terms. The company has also respectively. After factoring in an expected 30% shown a robust growth in net income of 3.1% in growth rate in EPS in 2003, the stock is trading at a sequential terms and 73.7% in YoY terms. The forward P/E of 74. management continues to deliver a good operational performance. The company has Taking into account the fact that most of the managed to cash in on the new found ‘price consumer sector companies are trading at a P/E sensitive’ nature of the American consumers. multiple of around 35-40, the valuation of the company looks excessive. Hence, the stock looks It is the opinion of the management that the highly overvalued at this point and investors could company would be able to show a growth rate in utilize the rally in the stock to book profits. revenue of around 50%-60% in full year 2003. The Therefore, in my investment opinion the stock is a subdued consumer-spending environment of the SELL at the current price. American economy has forced the company to sacrifice margins to show a good revenue growth Profile rate. This assertion is bolstered by the fact that gross and operating margins have contracted by 20 basis points and 120 basis points in sequential Online auction service eBay is a cyber-forum for terms terms. selling more than 18,000 categories of merchandise, from Beanie Babies to fine antiques. Hence, it is my opinion that the company may not The company, which generates revenue through be able to meet the target of growth rate of around listing and selling fees, boasts some 42 million 35% in EPS in full year 2003. The company could registered users. Fast-growing eBay is offering be able to show a growth rate of around 25%-30% new services and expanding into new areas only. (Australia, Brazil, Spain, Taiwan, and Switzerland) through site launches, acquisitions, and joint ________________________________________________________________________________________________________ Page 1 of 4 TAIB SECURITIES WLL, Manama, Bahrain. Tel: (+973) 534464, Email – desai@taib.com Analyst – Yogendra Singh Tel - (91-22) 4626076 Email – yogendra@taib.com
    • ventures. It sold its traditional auction house GAAP net income increased 102% year-over-year, Butterfields and has bought online payment to a record $109.7 million, or $0.33 per diluted company PayPal for about $1.5 billion. Chairman share. Pro forma net income increased 124% year- Pierre Omidyar owns 23% of eBay. over-year, to a record $120.9 million, or $0.37 per diluted share. Operating cash flows totaled a record Financial Highlights $208.7 million, a 125% increase from the $92.8 million reported in Q2 2002. Free cash flows totaled $ Million Q2 Q1 (%) Q2 (%) $22.6 million, a 25% decrease from the $30.1 2003 2003 Chg 2002 Chg million reported in Q2 2002, reflecting the purchase Total revenue 509.3 476.5 6.9 266.3 91.3 of additional facilities in San Jose, California. Cost of revenue 99.2 92.1 7.7 44.6 122.4 Sales and marketing 134.6 123.7 8.8 79.8 68.7 expenses Segmental Analysis Product development 38.8 34.3 13.1 24.3 59.7 expenses eBay reported record consolidated net revenues of Other costs 84.7 78.3 8.2 38.2 121.7 $509.3 million in Q2 2003, representing a 91% Total operating 258.1 236.3 9.2 142.3 81.4 year-over-year increase. Excluding PayPal, eBay's expenses Operating income 152.0 148.1 2.6 79.4 91.4 Q2 2003 net revenues totaled $407.7 million, Net income 109.7 104.2 5.3 54.3 102.0 representing a 53% year-over-year increase. EPS ($) 0.33 0.32 3.1 0.19 73.7 PayPal's Q2 2003 total net revenues were $101.5 Gross margin (%) 80.5 80.7 83.3 million, representing an 89% year-over-year Operating margin 29.8 31.1 29.8 increase compared to the $53.8 million PayPal (%) Net margin (%) 21.5 21.9 20.4 reported in Q2 2002. As expected, revenues from third party advertisers and end-to-end services declined 43% year over year to $12.4 million and Financials now represent approximately 2% of net revenues. Consolidated revenues reflected a foreign eBay reported record consolidated Q2 2003 net exchange benefit in Q2 2003 in the amount of revenues of $509.3 million, up 91% year-over-year; approximately $6.9 million, based on Q1-03 record operating income of $152 million, up 91% weighted average foreign exchange rates. year-over-year; and record pro forma operating income of $168.7 million, up 109% year-over-year. Based on Q2 2003 GMS, eBay has nine categories Operating income was 30% of net revenues and that deliver more than $1 billion in worldwide pro forma operating income was 33% of net annualized GMS: eBay Motors at $6.3 billion; revenues. Consolidated net income in Q2 2003 was Consumer Electronics at $2.0 billion; Computers at a record $109.7 million, or $0.33 per diluted share. $2.0 billion; Books/Movies/Music at $1.6 billion; eBay's pro forma consolidated net income, Sports at $1.5 billion; Clothing and Accessories at excluding certain items, was a record $120.9 $1.3 billion; Collectibles at $1.1 billion; Toys at $1.0 million, or $0.37 per diluted share. These results billion; and Home & Garden at $1.0 billion. exceeded the company's guidance of $500 million for net revenues, $0.30 for GAAP earnings per eBay's fixed price trading contributed approximately diluted share and $0.33 for pro forma earnings per $1.51 billion or 27% of total GMS during Q2 2003, diluted share. In addition, eBay's Board of Directors primarily from eBay's "Buy It Now" feature. Pure has approved a two-for-one split of all outstanding fixed price, which allows sellers to offer items for a shares of the company's common stock, payable set price rather than in an auction format, August 28, 2003 to stockholders of record on accounted for 11% of eBay's global GMS. eBay August 4, 2003. hosts approximately 110,000 stores, with slightly more outside the US than on eBay.com. Gross profit was a record $410.1 million, or 81% of Consolidated net transaction revenues totaled a net revenues, which was down from the 83% level record $496.9 million, which represented an reported in Q2 2002, reflecting the increased increase of 111% from the $235.3 million reported contribution of the lower margin PayPal business. in Q2 2002. eBay U.S. net transaction revenues ________________________________________________________________________________________________________ Page 2 of 4 TAIB SECURITIES WLL, Manama, Bahrain. Tel: (+973) 534464, Email – desai@taib.com Analyst – Yogendra Singh Tel - (91-22) 56626076 Email – yogendra@taib.com
    • totaled $242.4 million in Q2 2003, reflecting 45% 66% year-over-year increase from the $3.4 billion year-over-year growth. eBay International net reported in Q2 2002. transaction revenues totaled $155.2 million in Q2 2003, representing 146% year-over-year growth. Company guidance Cumulative confirmed registered users at the end The company now expects that revenues for 2003 of Q2 2003 were a record 75.3 million, an increase could be as high as $2.075 billion, $25 million of 6.5 million sequentially and a 51% increase over higher than the company's most recent guidance. the 49.7 million users reported at the end of Q2 This higher revenue outlook derives from the 2002. Active users, the number of users on the strength of eBay's US, International and Payments eBay platform who bid, bought or listed over the businesses. From a quarterly perspective, eBay trailing twelve months, increased to 34.1 million, a expects consolidated net revenue to be 57% increase over the 21.8 million active users for approximately $515 million in Q3 2003, and the same period a year ago. Listings totaled a approximately $575 million in Q4 2003. eBay's record 225 million in Q2 2003, 55% higher than the guidance is based on an assumed quarterly 145 million in Q2 2002. GMS, the total value of weighted average translation of 1.14 US dollars per items sold, was a record $5.6 billion, representing a Euro. Technicals EBAY has had a fantastic rally in 2003. It has recently made a double top in the US$115-116 range. The stock has been consistently taking support at the 30DMA and moving higher. Traders could look to exit the stock on a dip below the 30DMA. On the upside gains look capped at the US4 155 levels. Analyst – Yogendra Singh ________________________________________________________________________________________________________ Page 3 of 4 TAIB SECURITIES WLL, Manama, Bahrain. Tel: (+973) 534464, Email – desai@taib.com Analyst – Yogendra Singh Tel - (91-22) 56626076 Email – yogendra@taib.com
    • NOTES The information and opinions in this publication have been prepared by the research analyst of TAIB Securities WLL solely for the information of our clients. While reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, TAIB Securities WLL and its analyst makes no representation as to its accuracy or completeness. The information contained herein is subject to change without notice. Neither TAIB Securities WLL nor any of its officers or employees accepts any liability for any direct or consequential loss arising from any use of this publication or its contents. Any securities/shares/investments referred to herein may involve significant risk, may be illiquid and may not be suitable for all investors. The value of, or income, from any investments referred to herein may fluctuate. Past performance is not indicative of future results. Only investors with sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of investment in securities should consider and invest in any issuer or instrument mentioned herein. Additional information on recommended securities is available on request. Page 4 of 4 TAIB SECURITIES WLL, Manama, Bahrain. Tel: (+973) 534464, Email – desai@taib.com Analyst – Yogendra Singh Tel - (91-22) 4626076 Email – yogendra@taib.com