Novice Investing - Calling All eBay Users

Date: Monday 13th 2008f October 2008 10:45:20 AM

Calling All eBay Users - 12/1/2005

By: Novice Investing Staff

It seems like eBay needs to make plenty of calls to its sellers. Reports from thestreet.com reveals that eBay users are reluctant to use the capability of calling over the internet from Skype. eBay acquired Skype for $ 2.5 Billion back in October of 2005. The price tag can go to as high as $ 4.0 Billion depending on the performance metric of Skype after the acquisition.

Considering that Skype is not even profitable, the acquisition is clearly a gamble for eBay. It hopes to generate growth that has slowed recently. As revenue grows and online business maturing, eBay is struggling to find new avenue for growth. It can't grow fast enough by expanding internationally. Meanwhile, the stock price is priced for big earning growth for the foreseeable future.

A few weeks ago, we did a simple exercise on eBay and came up with 34.9% of earning growth built into eBay's stock price. That is, the company needs to grow earning 34.9% annually for the next five years to justify the current stock price. As revenue base grows, we feel that it is more difficult to grow earning organically by 34.9% and hence, the Skype acquisition.

eBay better hopes that Skype is worth what it was paying for. It needs to achieve a high earning growth of 34.9% to justify its valuation. Its last big acquisition was Paypal which turned out really well. It acquired Paypal for $ 1.5 Billion on the summer of 2002, the same year that Skype got started as a company. It is a slow start for Skype. Perhaps, more eBay sellers will realize the importance of calling over the internet feature which in turns give eBay more revenue generating venture. We'll see how eBay management turn this thing around.

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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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