Novice Investing - eBay Shows Google The Exit

Date: Monday 01st 2008f December 2008 04:36:51 PM

eBay Shows Google The Exit - 07/08/2006

By: Novice Investing Staff

Time has shown that competition is good for an industry as a whole. Stifling competition, and shareholders won't do well in the long run. Just this past week, eBay Inc. (EBAY) has indicated that its shareholders will be inflicted in the long run. On eBay payment policy, the company announced that Google checkout is not permitted as a payment method for eBay sellers. Resisting competition? You bet. On the list of payment services by eBay, you can see all sorts of payment companies that you may never heard of. Sure, Google Checkout is a new unproven payment method. But, have you seen how much revenue did advertisers pay Google last year? Six Billion dollars! In case you are curious, eBay generates a 'mere' $ 4.5 Billion in revenue in 2005. And now, eBay think Google Checkout is unproven.

There are two possible scenarios here but either possibilities do not bode well for eBay. One, eBay may decide to reject Google Checkout now as it is fairly new. It can add Google Checkout later once it is proven to be reliable and many users use it. Seems like fair, right? Yes. But, eBay forgets one thing. If other direct and indirect competitors has accepted Google Checkout from the start, eBay will face many defections and by the time it accepts Google Checkout, paypal may already lost the battle.

Second, eBay is banning Google Checkout to build a protective moat for its paypal division. Understandably, paypal generates about 25% of eBay's total revenue in the latest quarter. Well, if eBay is wary of Google Checkout, the best way is to improve its own paypal instead of stifling competition. It rarely works and it will not work with eBay. A lot of history has demonstrated this. Microsoft vs. IBM/Apple in the operating system sector is one good example. The thriving of eBay's own shopping.com site is another good example. Consumers simply more choice. Limiting customers' choice will limit your potential profit. You may hinder them for a while but as time progresses and competitors offer a far wider choices than you are, you will be on your way towards the checkout line. No buts and ifs.

While eBay is trading close to its 52 week low of $ 26.57, it is by any means a cheap stock. It is expected to earn $ 1.00 this year and their move of banning Google Checkout does not bode well for future growth in profit. Coupled with the rising interest rate, eBay fair P/E value should be a lot less than its current stock price.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding eBay Inc. (EBAY) or any other securities.

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