eBay looking solid

eBay reported another solid quarter last night with revenue up 27% and non-GAAP eps up 34%. Not bad for a company on a 2007 PE of 27.

The bottom line grew faster than the top line thanks to a weak US dollar, a higher operating margin and a lower share count. Obviously the dollar weakness may not continue for ever but it is great to see the share buyback program making a material difference and to see expenses growing slower that revenues.

One plus point was the acceleration of advertising revenue growth which grew by 65% compared to 2006, compared to 49% growth in the last quarter. Advertising revenue is still relatively insignificant though at $60 million compared to other revenues of $1700 million.

The problem eBay faces is the one all large, successful companies face - saturation in their largest markets. In this sense eBay are a victim of their own success, with growth in the US and Germany stalling. The management are doing their best to re-ignite growth and if they succeed this will obviously have a very material impact on the results.

The pattern is still one of slowing revenue growth. The figures for the last five quarters are:

35, 30, 31, 29, 27.

One positive is that international marketplace revenue now accounts 51% of total marketplace revenue, so hopefully the faster growing international revenue will become more and more significant.

What do I think of eBay? I think it is cheap at $35 and deserves to trade at $40 at least. It is recession-proof and still growing at a respectable rate. In light of that and the ongoing share buyback it is a buy for me.