Interesting article about eBay's position in the stock market and projections for the coming year.
"eBay, has been cut in half this year (2008). Like Merck, eBay is a very profitable business with high returns on capital, and it converts about a third of its sales to free cash flow. However, eBay's once blistering growth rate has slowed considerably over the past few years and the online auction business in the US has matured, and investors have shunned the shares. Three years ago, eBay's stock was valued at about 50 time earnings, now it changes hands at about 12 times earnings.
That's too low for a company that still grows revenue at a mid-teens clip, and maintains a strong competitive position in most of its businesses. Even if you assume the US auction market never grows again, eBay's fixed-price sales are growing at a solid rate, the international business is doing better than headlines would suggest, and Paypal continues to be extraordinarily successful. eBay will never again post the 40%-50% annual growth rates that it did in the past, but at 12 times earnings, it doesn't have to deliver hyper growth for the stock to do very well."
[From Money Magazine, November 2008, page 75, author Pat Dorsey.]
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