The eBay Slide

My eBay ramp (see earlier article) is becoming an eBay slide! The share price is at an 11 month low now – 40 % below its highs in December. It just goes to show that when a company is priced on multiples of over 100 so much of that price is emotion and so little is analysis.

Let me list what I think are the reasons for the share price dive:

- Earnings guidance missing expectations
- Price increases creating bad feeling
- US competition in the form of Overstock
- Meg Whitman interviewing for the Disney CEO post
- The recent court case involving the MercExchange Patent
- eBay’s vulnerability to "phishing" scams

The first reason is the most valid one. When you are on sky high multiples you are expecting 40% growth well into the future. Any sign of a growth slow down and the stock gets hammered. I would say this possibly justifies a 20% share price decrease.

The second point is purely emotional. Pricing is a black art. Don’t think that eBay have made this decision lightly – they probably have a team of pricing experts. Increasing the prices maximises the profit from core users who won’t leave at the expense of possibly losing some of the light users. Whether is will help earnings significantly remains to be seen but unless you are a pricing expert this is not a reason to doubt the company.

The competition with Overstock is really not such a bid deal. When you have such a fantastic business model as eBay does you must expect competition. If it wasn’t Overstock it would be someone else. Competition is healthy and Meg Whitman professes that she loves it. eBay investors need to accept that competition is part of life. eBay is best placed to win.

Meg Whitman interviewing for Disney does not worry me. Who in their right mind would turn down an interview for such a post? Meg is a free woman and I don’t blame her for considering her options. She chose eBay in the end anyway.

The recent court case is just a storm in a teacup as far as I am concerned. There may be a small fine for eBay to pay but I don’t see this having long term repercussions.

The "phishing" vulnerability is nothing new. This is the sort of thing that analysts talk about when they are trying to find reasons for the share price drop. eBay have a big team of security experts working on this constantly – the danger will not go away but it is being monitored and addressed.

So there we have it – the news maybe justifies a 20% share price drop but not 40%. Articles like this recent one in the Motley Fool make me laugh – the author states that he wishes he had bought eBay over a year ago when it was cheap, so he could have made a fortune last year. However now it is cheap again he is not going to buy it for a number of wooly, emotional reasons. Ha ha ha, that is not how to be a successful investor. To be really successful you have to be bold and buy when everyone else has sold.

My time is up. Be brave and buy eBay.