Once upon a time, it was a cool place to scoop up stuff you’d find at a flea market. Then things changed. Retailers used eBay as a secondary market. Then the gray marketers showed up, hocking their compatible ink cartridges and “just as good” substitutes for original equipment manufacturer products of all stripes.
Today, eBay is a joke. I’ll tell you why, and then I’ll tell you why it is nothing without PayPal, its soon-to-be spun off online payment division.
EBay has thrown sellers under the bus. Back in 2008, the company started a policy in which sellers could not post negative reviews about buyers. The whole reason the market worked previously was because of the honor system, where a rating meant everything. There was a rebuttal system as well, and that meant that everyone had a say and the free market would determine who was deserving of business.
Since the policy change, fraud has skyrocketed. Buyers are cheating sellers left and right.
I must share this anecdote with you as an example, because it happened to a friend. An eBay member purchased a $449 Senneheiser microphone from my pal. She sent it. Upon receipt, the purchaser instantly complained and threatened to give her negative feedback unless she refunded the money and paid for return postage. She refunded the money, and the buyer sent back an empty box! Scumbag.
Multiple complaints to eBay got her nowhere. The company simply didn’t care, even after others had already reported the same user.
No wonder the marketplace revenues are in a downtrend. That means that it’s only PayPal that is delivering growth, all 11% of it.
EBay plans to spin off PayPal as a separate company this summer. So if you don’t already hold eBay stock, don’t bother buying it. You’ll be stuck with most of the $6 billion in debt after the PayPal spinoff. You’ll be holding a company that doesn’t care about its customers, that isn’t growing, and that has devolved into a national joke.
Amazon.com (NASDAQ: AMZN), meanwhile, has developed into the secondhand marketplace that eBay was designed to be. There’s far more transparency, and Amazon stands behind its return policy. It’s a really fair return policy, too.
When I search for any item, at this point I don’t even bother checking eBay. I don’t trust it. I don’t trust the sellers. I don’t trust the buyers. I don’t trust eBay to protect me like they claim.
How bad is it at eBay? In the last quarter, marketplace revenue fell 4%. PayPal revenue grew 14%, to $2.1 billion, which was more than the marketplace’s $2 billion. PayPal payment volume rose 18% to $61 billion. You can guess which division is mostly responsible for the $943 million in profit.
You want to pay 21 times earnings for this piece of junk? Be my guest.
Might I be wrong? Could Alibaba (NYSE: BABA) jump in at some point and buy out eBay? Would we be missing out on some kind of amazing premium for the business?
Sure. Alibaba probably will buy out eBay. I wouldn’t put anything past a company with an expensive stock that can just issue a ton of shares to buy eBay. But I bet any premium would be only 8%-12%.
Fine. Take it. I don’t want it.
This article is brought to you courtesy of Lawrence Meyers from Wyatt Investment Research.