eBay DD Due Diligence. C-19 is about to reboot this rocketship

Sharing is Caring!

by NewFlipPhoneWhoDis

eBay could SOON become pound for pound one of the most profitable enterprises outside of gambling and drugs.

TLDR

Bad Leadership at eBay for YEARS

Corona flips the script. Bull Case $180 Bear Case $220 Future Price Target maybe more. We will see how peoples mind changes when we see earnings.

BUY 11 – 101 – 1001 Shares Depending on Bankroll (I like shares on this one as I expect the company to pay dividends) X Multiples of 100 for future CC.

7/31 $80C (These look the juiciest RN)

(8/21 $90C if made available)

1/15/21 $85C

Ebay is an online auction house. Look up your local auction house and spend an evening or day at the Auction. It is fun and will help you understand why previous CEO’s tanked this awesome company with their stupidity. Hammering a Diamond into a square hole.

Worked for an auction house 4 years. If you go to a well run local auction you will see diverse people, successful auction houses have a customer makeup like this:

30% Hustlers and People involved with the auctions (Consignees etc)

20% Rich people (Rich people love auctions and I’m not talking about Sotherbys I’m talking about a normal sized city weekly auction there will be lots of rich people there)

40% Normal people that either like the thrill or value seekers.

10% Poor People.

This is important when we talk about bad CEO decisions. You have to know your audience.

Ebay started out with this dude selling a broken laser printer, Pierre Omidayer. It grew quickly and he brought in professional help. This can be a good thing as founders can get in the way of growth. In 1998 Meg Whitman was hired to be CEO. Her tenure was unimpressive and she was responsible for the first of two massive blunders that decapitated eBay growth.

Ebay was growing and the internet was starting to get widespread use. By the early 2000s people started to talk about WEB 2.0 and for some reason certain people thought that WEB 2.0 meant being fancy. Ebay did a massive redesign that was hated by most people. Broadband internet was in it’s infancy and the focus on form over function was frustrating for low bandwidth users as the fanciness was more complicated and took longer to load. Additionally it stunted the pathway that would eventually appear for mobile growth. The remnants of this design linger today.

Screen Cap of the AOLfication of eBay late 2003 I believe one of the big problems was rendering the menus in AJAX or something similar, very slow to load in that era

Here we can see the failure in line graph form, (These things lag) eBay share price got hammered. One the reasons for the hammering was lackluster earnings, many ebay users attribute this to the redesign failure as it turned off existing and new customers.

Link to image as it loos like this sub doesn’t allow embeded images

Project Ugly-ify and Slow-ify eBay looks to have lopped off growth and momentum for the share price. Meg Whitmans tenure at ebay neutered growth.

One could blame Whitman for doing a lot of damage to eBay growth but she will largely be forgotten after you learn about the FLAMING DUMPSTER FIRE OF A CEO that is John Donahoe. In 2008 eBay hired Donahoe to be CEO. This could possibly be the worst hire in the history of all hires.

Don’t take my word for it. In 2014 Carl Icahn said eBay was the worst run company he had ever seen.

Carl Icahn says eBay is the worst run company he has ever seen

Donahoe had series after series of bad decision. He basically went to war with small and medium sellers (eBay’s actual bread and butter customers) and went to great lengths to attract large corporate clients. (The worst type of business for eBay) and run away his most profitable customers.

eBay is a market place.

Donahoe gave steep discounts in fees in order to attract corporate customers.

Companies like Target started to sell on eBays platform. (Most are now gone because within a few short years the internet was mature enough that they could start their own platforms)

Link to no longer existing eBay Target Store

Fee discounts to corporate customers angered existing sellers.

In early 2013 he implemented eBay’s search algorithm (Cassini I believe it was called) Previous to this Algo eBay was just a dumb search engine. With the Algo, eBay could control visibility of items on the site via built in preferences like Best Match. With this Donahoe is about to fire maybe 20% of his most profitable customers and give the Amazon marketplace a flood of new users. This idiot was trying to turn an auction house into the next Amazon. Instead he just put Amazon growth on steroids and shoots himself in the foot.

Cassini was used to ban eBay’s customers. DROVES OF THEM

Donahoe decided that any problems on eBay were caused by sellers and he declared war on the people that were his customers.

Enter DSR. Detailed seller ratings was eBay implementation of strict guidelines for their sellers. DSR = 4 categories, each category was rated 1-5 with 5 being good. The system treated 1&2s as a failure.

For Example Customer was unhappy with an item they received for whatever reason. If someone rated a part of the transaction a 2 they would get a ding against their DSR. Problem is they treated all categories the same and the thresholds were very stringent.

For every 1000 transactions a seller had to have LESS than 10 dings in order to participate with Cassini without a search penalty. If the 10 threshold was crossed (Which is 98.9% or less good rating) they would be penalized in the search standing and go under probation. If they crossed 20/1000 or 97.9% or less positive approval rating they would BAN YOU FROM THE PLATFORM.

YOU READ THAT CORRECTLY John DONAHOE in is infinite wisdom decided that sellers with as high as a 97.9% positive transaction rating were disposable. I’ve NEVER SEEN SOMETHING SO STUPID IN MY LIFE.

I kid you not. Donahoe implemented a system where a 98.9% POSITIVE rating has a penalty and 97.9% positive is a ban. (Check the feedback on tons of Amazon marketplace sellers and you will see how ridiculous a threshold this was) What was even more ridiculous was in the beginning all categories were treated the same. For example Books were treated the same way as used women’s clothing. Certain categories like womens clothing were DECIMATED by sellers being banned. People who had been on the platform for a decade and had say a 97% positive feedback selling USED WOMENS CLOTHING were banned left and right. It gets worse, remember how at 98.9% they would put you on probation? Some people called this the DEATH SPIRAL as if you were on probation the new “Best Match” system would lower your search standing. So if you were some poor schmuck who had sold 397 used pieces of womens clothing that year and just 4 of them were unhappy with the experience. You’d go on probation with little to no hope of anything other than the ban hammer. I’ve read many period era messageboard posts of long time sellers in probation trying to do EVERYTHING they could to raise their DSR to get out of probation but had zero visibility with the new algo, they were just left to wither on the vine hoping fruitlessly to turn things around. Most of them didn’t know it YET but eventually as people started putting the pieces together there was no chance of them escaping the Death Spiral. Gaggles of people spent MONTHS trying to save their accounts and eventually most of them realized they were screwed, there was nothing they could do about it because of the Algos. These sellers turned on ebay and took others with them.

If you notice during this time period AMAZON marketplace took off. Daddy Bezo’s had a flood of experienced online traders who simply shifted their operations to the less popular (at the time) and more expensive platform (at the time). It was either that or close shop. MANY CHOSE TO CLOSE SHOP.

The stupidity of all this was the Small and Medium sellers were the real money makers. eBay charges around a 9% fee with a cap of $250 per transaction.

Which is more profitable?

Target selling 50,000 items or 5,000 small to medium size sellers selling 100 items?

The answer is in the nature of marketplaces. Target sells to 5,000 customers and that is the end of the story. Small to medium sized sellers tend to keep the money in the marketplace. User A sells to user B for $100 User B can turn around and take that $100 and buy something he needs for himself or his business from user C, user C can then do the same. Wash, Rinse, Repeat. Target selling $100 is a one way street while Small to Medium users can be a continuous money carousel.

Donahoe in his infinite ignorance ran off many of his prime sellers. Ultimately sellers are your customers as they are the one’s who pay the fees. He jump started his competition whom he was stupidly trying to emulate. The important thing to understand about eBay is their product (An Auction) is easily scaleable and cheap to run

For example this Rolex

costs about the same to service this listing for a rug

The Target deal, illustrated with a bathroom rug

Chasing these corporate dollars was infinitely stupid.

  1. They gave these corporations steep discounts to use the platform
  2. The internet was maturing and we were just a few years from all these corporations having their own web presence
  3. Robbed dollars and eyeballs from your bread and butter. Auction and Store listings of small to medium sellers.
  4. Robs future revenue from carousel customers who return money to the marketplace and gives it to corporate customers who do not return dollars and are using the dollars they make off you to build the infrastructure to replace you. DING DING DING

This dude declared war on some of his best customers and tried to make eBay an ugly corporate shill and would eventually lead to the invasion of cheap Chinese stuff (eBay is now combating that)

We can see the results of his war on customers with this graph. eBay’s growth and revenue was decimated by this idiot and you can see the results once the earnings were reported (Which lagged the implementation of his stupidity)

War on customers displayed via line graph

Donohoe decapitated ebay right during what would have been it’s prime growth years and funneled those customers to his biggest competitor.

eBay can make far more with less because of the nature of it’s bread and butter customers. Many auction enthusiasts are high income types. eBay has better demographics financially than it’s competitors. There is even a fairly large industry of arbitrage where people sell items they source elsewhere (Like amazon) and basically drop ship them off as eBay sells because some stuff sells at a premium on eBay.

eBay CAN make more money per transaction compared to similar industries and can capture a significant amount of money to return within the marketplace. Similar to sales tax, that dollar can bounce around within the marketplace and eBay can take it’s 9% cut every time it switches hands.

Interesting side rabbit hole that arises during the Donahoe years. Donahoe was obsessed with attacking his own customers. This was commonly followed in an industry blog called AuctionWeb and then eventually named ecommercebytes. Run by the Steiner Couple

Here is an article their website published about them getting rid of sellers

They reported on all of eBay’s policy changes and basically called them out for being the giant window lickers they were. It ruffled a few feathers within the organization and now 6+ employees of eBay are being charged with crimes like harassment and stalking. Really a crazy story. DONAHOE is to blame for the policies and culture that allowed this to happen. He should go to jail over just what he did to the share price.

Crazy eBay Criminal Stalking

More Crazy eBay Harassment

During all of this foot shooting was when Carl Icahn said that eBay was THE WORST RUN COMPANY HE HAD EVER SEEN

One of the problems was the incestuous nature of eBay’s relationship with Paypal and the board members who presided over both. They basically spent a decade doing what was best for the board and not what was best for the Shareholders, employees and customers of eBay.

This is now not so much a problem because many of those relationships no longer exist. In the aftermath the other pieces have found increased market value and eBay has been suppressed due to it being stuck with all the burdens of the Donahoe administration and bad perception.

eBay should have been worth more as an individual piece and it’s was the one who took the financial hits.

PayPal Split in 2015

PayPal has a 113 P/E (I’m not saying this is the best metric to judge a company I’m just using it for illustration)

If eBay traded at Paypal P/E it would be worth $660

So what’s the catalyst to the eBay Rocket Ship that is about to take off?

CORONA. Corona is shaking up the whole economy and this shake up will jolt eBay to it’s full potential.

Alexa 90 days, even better at 140 and this growth is against the normal ebb of seasonal business

Over the past 4 months as far as I can tell eBay has increased traffic by as much as 18%+ which is pretty AMAZING for a very mature internet company. Even more amazing when you take into account that this is normally eBays slow period. Traffic is normally on the downturn. YOY I am curious how much busier they have been I’m guessing 45% YOY increase in traffic for the Month of May & June

April May June July are eBay’s 4 slowest months and the July 28th earnings will encompass 3 of those 4 months. During the slowest time of year eBay went from the mid 50’s to the lower 40’s for it’s spot in total Internet Traffic. A HUGE shift against the normal tide of business cycles.

Traffic for last 90 days. Up much more over entire Corona Period the increase looks more bigly when you view 150 days out

I’ve spent a few hours trawling eBay seller message boards. Within this quarter I have heard of increases in per transactions and a decrease in “Best Offers” which means better margins for sellers and more fees for eBay. I attribute this to Corona disrupting normal supply chains. eBay has been established for many years so boomers when they can’t find something are like “Oh Yeah EBAY.” Many sellers report increased sells in business related categories and more aged inventory being sold as parts of the market shift towards online from some of the traditionally Bricks and Mortar industries. eBay has a very successful and well made app. Sellers are seeing increased usage amongst younger buyers/sellers whom are either bored with the lockdowns or looking for side income after losing their jobs. Remember when we mentioned 500 small sellers being worth more than one big corporate client? This will be obtained with an army of people using the app on their cell phones. Corona is going to get the attention of customers they lost over the years as they come back to the platform they remember, millennials and new users when they discover the well made app will come online. I’ve added the eBay App to my phone it is very good and has very customizable search features.

The Bear case for eBay is even more, if Corona turns out to be worse (It’s not) everything online just becomes more valuable.

So what is eBay worth?

Well it’s a better investment IMO than Paypal

eBay valued like Paypal is worth $660

Mercardo Libre is worth more than eBay (This is a Crime) as it is not even a top 1000 worldwide website while eBay is top 50. Plus it doesn’t even turn a profit. If you have any MELI stock sell half of it and buy eBay in addition to whatever you would buy if you didn’t own MELI do the same for PayPal as well IMO.

If eBay was valued like MELI it would be worth Tesla numbers

Mercardo Libre has a 25% bigger market cap than eBay and doesn’t turn a profit. Ebay would be $76 a share just to be on par with MELI and it shouldn’t even be in the same ballpark.

Etsy is just outside of the Top 100 for web traffic and has a 181 P/E if eBay was trading like ETSY it would be trading at $1090 a share

If eBay was valued like ETSY it would trade for $1090

Channel Advisor is a company that grew out of offering services for eBay and while it works on multiple platforms it’s use was born from eBay and it has a 60 P/E

If trading like Channel Advisor it would be worth $363

Corona shifted a lot of users to the eBay marketplace because of busted supply chains. They now have an Okay website and an EXCELLENT APP. This increased use comes during the traditional low tide of eBay traffic and if eBay leans into the coming quarters their revenue is going to skyrocket. Corona was the catalysts to wake everybody up to what eBay could do and what it should be worth. EBAY should be one of the most profitable companies in the US economy with lots of room to improve the bottom line. It has all the pieces.

Like

Selling off some of the MANY side projects under the eBay umbrella

Streamlining Employment

Just this month they are integrating their own payment platform which should add 1-2% more to every sell which is a big deal considering that the average fee is around 9%. We are talking about maybe 20% added to revenue with not much changing. BIG MONEY

Winning back Small to Medium sellers and improving the per item transaction is eBay’s ticket to tendie town. All the new growth they are experiencing is exactly what they need and want. They have a good App that can capitalize on the reboot.

eBay has ample room for growth and I suspect the income levels of buyers in the marketplace is higher than competitors like Amazon, Etsy, Overstock, Stitch Fix. eBaY has more people with money paying attention.

New CEO seems to be a bright guy. All he has to do is not SHOOT HIMSELF IN THE FOOT like the Donahoe CEO. If successful eBay will be on the moon mission of all moon missions

MOST UNDERVALUED TECH COMPANY IN AMERICA. As always my DMs are open and I do mercenary stuff. I have my position and I am currently buying shares with a goal of 303 shares before earnings.

I suspect this thing will have VERY little resistance upon takeoff

Little Resistance

BUY 11 – 101 – 1001 Shares Depending on Bankroll (I like shares on this one, I like the company and I’m expecting dividends) Once this rocket settles it is covered call selling time. (This is why you want multiples of 100

You should be at least a 80/20 Options/ Share split. Got to water the seed

Options

7/31 $80C

(8/21 $90C if ever made available)

1/15/21 $85C (Also I’d buy higher but they are not currently available, if BEFORE earnings Higher Strikes appear I would go up in strike A LOT. If earnings are up big this is ONLY THE BEGINNING as this is eBays SLOW PERIOD. Earnings for the fall will be CRAZY if Traffic continues to hold and if it has the normal Santa Claus Tax increase 🚀🚀🚀🚀🚀

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.

112 views

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.