eBay pleases at last

Finally, some good news from eBay!

Q4 results are out and the market likes them, judging by the share price's 13% jump after hours!

Revenue is up by 29%, there is another $2 billion authorised for share repurchases and PayPal is still growing at almost 40%.

So having read the earnings release and the conference call transcript, what are my initial reactions? eBay is just FINE at the moment. Organic growth may be down to the 20% level but the strength of eBay's business model means they can generate enough cash to repurchase large chunks of shares and invest in selective acquisitions. This should keep EPS growth about 20%.

The weak dollar has actually added 5% to the revenue growth rate in Q4 2006 so if the dollar strengthens in 2007, year on year comparisons could look poor.

One impressive thing about eBay now is the increasing diversity of its income streams. While almost 75% of revenues come from marketplaces this revenue is from countries all over the world. PayPal now accounts for almost 25% of revenue and this figure will increase as PayPal continues its meteoric growth. Skype and advertising revenue is increasingly becoming material as between them they contributed over $100 million in revenue in Q4.

Skype now has a huge lead over its competitors so hopefully its management can be a bit more aggressive in 2007 in monetising is popularity.

I think based on the strength of its business model, the fact that it has no direct online auction competitors in most countries, the potential of PayPal and Skype and the 20% organic revenue growth eBay deserves a forward PE of at least 30.

That would put it at $40. Now that would give my portfolio a lift!