eBay_Summary by landell

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									                                                                          Industry view:                    ATTRACTIVE
   eBay Inc.                                                              Company view:                MARKET-PERFORM                                                    Indigo Equity Research Limited
   Latest results:                  Q4 2010                               Company Rating:                       LOW     MED.    HIGH                                info@indigo-equity-research.com
   Country:                             USA                                          Risk                         -     1.00     -                                   www.indigo-equity-research.com
   Sector:                           Internet                                        Quality                     1.00    -       -

   RIC (Ticker):                    EBAY.OQ                                          Valuation                    -     1.00     -                                                                 15 Feb 2011


                                                                                                                                                                 Share Price - Last 10 Years
  Investment Overview                                                                                                                         70
   Note: this is a short & free version of a more complete (5 page) report on eBay.                                                           60
   Executive Summary
                                                                                                                                              50
   Since 2004, eBay's financial performance has disappointed, with slowing revenue growth & falling margins.
   eBay is essentially a first generation internet company that has failed to evolve due to poor management,                                  40




                                                                                                                                        USD
   despite a new CEO in 2008. In our opinion, consensus EPS forecasts for 2011-12 look very optimistic.                                       30

                                                                                                                                              20
   eBay's real value and future growth potential is from PayPal, not Marketplaces.
                                                                                                                                              10
   - Marketplaces (ebay.com) represents about 60% of revenues and is underperforming. Revenue
       growth is low, it lacks sustainable competitive advantages, is losing market share to Amazon,                                           0




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       management are not developing the business adequately, and its target market is maturing.
   - On the other hand, PayPal is performing strongly (growing rapidly) and has considerable potential.
                                                                                                                                                                 EBAY                              S&P 500 (Rebased)
       However, PayPal represents only c.40% of eBay's revenues, the impact at Group level is diluted.
                                                                                                                                        Capital Structure                                            Per Share           Total
                                                                                                                                                                                                         ($)            ($ Bn)
                                                                                                                                        Share Price                                                       33.9
                                                                                                                                        Number of Shares (bn)                                                                 1.3
   Significant recent developments                                                                                                      Market Capitalization                                                               44.1
    - Q4 2010 results were good. Revenue growth continues to decline, but margins improved slightly.                                    Net (Debt) / Cash                                                     5.7             7.4
       EPS has recovered to pre-crisis levels. Marketplaces continues to underperform & PayPal outperforms.                             Minority Interests & Prefs                                          -10.6          -13.8
       PayPal's revenue growth appears to be stabilising at an impressive level of 20%                                                  Enterprise Value (EV)                                                38.8           50.5
    - PayPal's new pricing schemes are reportedly gaining it market share on Android & Facebook platforms.                              Net Debt / Market Cap.                                                                  -
                                                                                                                                        Pierre Omidyar                                                                       11%
                                                                                                                                        Financial Results                                     2010         2011e           2012e
                                                                                                                                        y/e 31 Dec                                          ($ Bn)        ($ Bn)          ($ Bn)
   SWOT Analysis - key drivers                                                                                                          Sales                                                  9.2          10.4            11.7
                                                                                                                                        EBIT                                                   2.1           2.7              3.0
   Strengths                                                         Weaknesses                                                         Net Income                                             1.8           2.4              2.6
    - Strong brand & market positions (one of the                     - eBay is essentially a "middleman", and lacks                    Share Capital                                         16.2          18.0            20.3
       largest online auctions & payment systems).                      sufficient differentiation from competitors.                    Total Assets                                          20.8          22.9            25.5
    - Technology (technical platforms).                                 ie. Lack of sustainable competitive advantage.                  FCF                                                    1.5           2.1              2.4
    - Strong balance sheet with a large pile of cash.                 - Declining revenue growth, margins & market
    - Attractive business model; which requires few                     share. Marketplaces' active users are static.                   Per Share Data                                       2010          2011e           2012e
       physical assets or working capital.                            - Management have failed to develop eBay's                        EPS                                       ($)        1.38           1.81            2.01
                                                                        business sufficiently.                                          DPS                                       ($)         -              -               -
                                                                      - Weak revenue growth in Marketplaces.                            Cash EPS                                  ($)        1.17           1.57            1.85
                                                                                                                                        BV                                        ($)       12.39          13.77           15.58
   Opportunities                                                     Threats
    - E-commerce is an attractive growth industry.                    - Competition from Amazon (in Marketplaces).                      Efficiency analysis                                   2010   2011e   2012e
    - PayPal has considerable potential. eg. Mobile                   - In this industry changes can be rapid.                          EBIT Margin                                         22.4 % 26.0 % 26.0 %
      platforms, micropayments, digital (media) goods                 - Continued trend of slowing revenue growth                       Net Profit Margin                                   19.9 % 22.6 % 22.6 %
      and social platforms (eg. Facebook credits).                       and falling margins, since 2005.                               Asset Turnover                                      44.1 % 45.7 % 45.7 %
    - Better leveraging the eBay brand.                               - Slowing broadband growth in eBay's key                          Net Gearing**                                      128.4 % 127.1 % 125.5 %
    - Greater international expansion.                                   markets (USA, UK and Germany).                                 ROE                                                 11.3 % 13.1 % 12.9 %

                                                                                                                                        ** = Net Assets / Share Capital & Reserves
                                                                                                                                        Growth analysis                2010    2011e                                       2012e
   Brief Business Description                                                                                                           Sales                         4.9 % 14.0 %                                        11.7 %
   There are two main bsuiness divisions: Marketplaces which provides online auctions, and PayPal which                                 EBIT                        41.0 % 32.2 %                                         11.7 %
   provides an online payment system. eBay's main MarketPlaces website is ebay.com, but it also manages                                 Net Income                 -24.6 % 31.0 %                                         11.5 %
   other auction and shopping websites.                                                                                                 EPS                           0.0 % 31.0 %                                        11.5 %
                                                                                                                                        DPS                             -        -                                           -

                                                                                                                                        Valuation Multiples          2010      2011e                                       2012e
      2010 Revenues                              2010 Revenues                                2010 Analysis of                          EV / Sales                     5.5        4.8                                        4.3
      by Geography                                 by Division                              Marketplace Revenues                        EV / EBIT*                   24.4       18.6                                        16.7
                                                                                                                                        P / Sales                      4.8        4.2                                        3.8
                                                                      USA
                                                                                                                Motors         Home &   P / EBIT*                    21.3       16.3                                        14.6
                                                                     MarketPl.
                                                                                                                 23%           Garden   PE*                          24.2       18.7                                        16.8
                                                                      26%
                       USA                 PayPal                                                                               12%
   Int.                                                                                    Others                                       PEG                            -          0.6                                        1.5
                       46%                  38%
  54%                                                                                       49%                                         P / BV                         2.7        2.5                                        2.2
                                                                                                                         Clothing &
                                                                                                                         Accessorie     P / FCF                      29.0       21.5                                        18.3
                                                              Int.
                                                            MarketPl.                                                         s         EV / Assets Value              2.4        2.2                                        2.0
                                                                                                      Computers
                                                             36%                                                            9%          Dividend Yield                 -         -                                           -
                                                                                                         7%
Int. = International          Market Pl. = Marketplaces                                                                                 * = Excluding unusual & exceptional items
                             TPV = Total Payment Volumes                                GMV = Gross Merchandising Volumes               2011e, 2012e etc… = Consensus Estimates.
Page 1 of 2                                     CONFIDENTIAL                  For illustration purposes only.                                                                               Sources: eBay, Bloomberg



   Buy the complete (5 page) report.                                                                                                               www.indigo-equity-research.com
                                                                                                                                                                                                                                                                  15 Feb 2011


                                                                                                             Quarterly Financial Results - Since 2000

                                                            Revenue and Growth                                                                                                                Revenue Growth by Division
             3                                                                                                                      90%                      80%

                                                                                                                                                             60%
             2                                                                                                                      60%
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                                                                                                                                                             40%




                                                                                                                                             Growth
             1                                                                                                                      30%
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            -1                                                                                                                      -30%                 -20%
                         Skype (sold)                                         Other                                      PayPal
                                                                                                                                                                              MarketPlaces (Auction)                                                 PayPal                            Total
                         Int. MarketPl.                                       USA MarketPl.                              Revenue Growth
Growth.** = Estimated organic revenue growth.                                                                                                         Int. = International                                                                                  Market Pl. = Marketplaces
ie. Growth.** excludes PayPal in the year of acquisition and all Skype.

                                                             EBIT & EBIT Margin                                                                                                                                    Margins
             800                                                                                                                    80%                  100%

             600                                                                                                                    60%                      80%

                                                                                                                                                             60%
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                                                                                                                                             Margin




             400                                                                                                                    40%
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             200                                                                                                                    20%
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                 -                                                                                                                  0%                        0%

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                                                                                                                                                             -20%
            -200                                                                                                                    -20%
                                                        EBIT *                                            EBIT* Margin                                                EBIT* Margin                         Net income Margin                                           Gross Margin
* = excludes unusual items.                                                                                                                                                                                                                          * = excludes unusual items.


                                                             Net Income Analysis                                                                                                                        EPS & Growth
             800                                                                                                                    800                       0.60                                                                                                                 120%

             600                                                                                                                    600                       0.50                                                                                                                 100%

                                                                                                                                                              0.40                                                                                                                 80%
             400                                                                                                                    400




                                                                                                                                                                                                                                                                                               Growth
                                                                                                                                           USD (bn)




                                                                                                                                                              0.30                                                                                                                 60%
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             200                                                                                                                    200
                                                                                                                                                              0.20                                                                                                                 40%

                     0                                                                                                              0                         0.10                                                                                                                 20%
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                                                                                                                                                                -                                                                                                                  0%
            -200                                                                                                                    -200
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                                                                                                                                                             -0.10                                                                                                                 -20%
            -400                                                                                                                    -400
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                               EBIT*                                                 Tax                                    Other
                               Net Interest                                          Unusual                                Net Income*                                     EPS*                  Unusual Items                                              EPS* Growth (12m av.)

 "Other" includes non-operating items (eg. income from associates).                      Unusual items:
 "Unusual" includes one-off, exceptional and extraordinary items.                              1) In Q3 2007, $1.4bn of Skype was written-down.
 Indigo Equity Research determines what amounts & items constitute "Unusual items."            2) In 2009, 65% of Skype was sold generating a $1.4 bn gain.
 Copyright © 2011 Indigo Equity Research Limited                                         Note that eBay management frequently quote non-GAAP EPS in results.
Explanation of Company Ratings: Ratings are subjective. Risk, = Risk of earnings disappointment or volatility. Quality, = Quality of the company based on criteria
such as management, market position, pricing power, market growth, quality of services etc….. Valuation = Absolute measure of valuation multiples. Typically the good
quality & high growth companies have high valuations; and the low quality & low growth companies have low valuations.
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Page 2 of 2                                                          CONFIDENTIAL                                 For illustration purposes only.                                                                                                              Sources: eBay, Bloomberg



            Buy the complete (5 page) report.                                                                                                                                                                    www.indigo-equity-research.com

								
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