Look, we realise that eBay has been a dog and that you traders can’t sit around waiting years for companies to get their acts together. But I mean my goodness this stock is cheap.
News Flash: eBay is not a newspaper company. It’s not a car company, a paint company, or a cable company. So why is it trading like one?
eBay generated $2.2 billion of free cash flow in 2007. Excluding cash, the stock is now trading at 15X trailing free cash flow. 15X! For a global ecommerce leader with:
- a hyper-capital-efficient business,
- strong network effects and barrier to entry,
- a new CEO who seems to get it
- ultra-conservative guidance
eBay is now addressing three of the four problems that have been hobbling its business. (And addressing the fourth is just a matter of calling Goldman Sachs). Let’s say new CEO John Donahoe turns out to be an idiot and executes his transition plan terribly and eBay’s free cash flow stays FLAT in 2008. (It’s currently expected to rise at least 10% and probably 20%, after exiting Q4 at 26%.) The stock would still be cheap.
People, Time Warner trades at about 20X trailing free cash flow. Time Warner! A business is such desperate straits that if we were Jeff Bewkes, we would spin off AOL and then spend the rest of the year hiding under our desks. Do you really believe that Time Warner has a lot more growth in its future than eBay?
All eBay has to do to get itself going again is:
- Sell Skype
- Fix the interface
- Cut prices
If it does all those things, the stock is going to the moon. If it does only one of those things, the stock is probably going up. So, you’re really telling us you would rather pay 30% more to own Time Warner than eBay?
Disclosure: Yes, yes, Henry Blodget owns eBay. But he has been peeing on it and Meg Whitman all the way down, and he’d make the same argument now regardless.
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