18 July, 2007

What's better for eBay, More from Less or Less from More?

As eBay's (EBAY) quarterly earnings came out there seemed to be both some answers and yet more questions, so I'll pose another one. Which is better More from Less or Less from More?

In other words, can eBay continue to provide revenue growth (a.k.a. More) from a shrinking number of listings (a.k.a Less) by increasing prices, or would it be better for the company to spur growth by driving More listings and perhaps charging Less?

The company reported official earnings of $0.27/share vs. $0.17 a year ago, and when taking into account everything reported $0.34/share vs. the consensus $0.32/share. So shouldn't every thing be rosy with an earnings beat? Well not so fast because digging into core business metrics reveals another story. Listings, a staple of eBay's business fell once again by 2% compared to a year ago. To make matters worse for the stock, management said that revenue growth would outpace listing growth.

eBay has made strong acquisitions in the past with PayPal and it's recent purchase of StubHub.com. It's purchase of Skype for billions is still up in the air, however revenues from that division were $89 million in it's second straight profitable quarter. But the question still remains, what happens to the company growth prospects if the current listings trend continues? There will eventually be a point where eBay customers will not want to pay more, so the company has to find some way to entice new customers.

However, for the time being management seems confident in the overall business as it raised guidance for the rest of the year. Should you be as confident in the stock's resurgence mainly through other revenue streams? I for one would wait to see some sort of turnaround in the core listings business before paying 38 times earnings for a company that praises the performance of secondary revenue streams PayPal and Skype.

Disclosure: Author holds no position in EBAY

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