As I recently said, I increasingly see a battle on the horizon between Yhoo, ebay, amzn, msft, google and others... maybe that will put ebay's valuation under pressure...http://yahoo.businessweek.com:/print/technology/content/jun2004/tc20040617_6618_tc024.htm?tc
My old buddy Hildy (or should I say, my long time buddy Hildy? Both apply :) ) has been after me to post something here about the BMW Method of stock investing. I think eBay is a good candidate for the BMW Method so here goes...BMW does not stand for expensive German cars, it stands for BuildMWell, a fellow fool who has developed an interesting way of looking at the stock market to the point that he now has his own board:http://boards.fool.com/Messages.asp?mid=20902705&bid=116681The BMW Method looks for stocks with long time growth histories that are currently being punished by the market for no just reason. Preferably the histories should be 30 years long but the Method can be applied with less data. October 2, 2002 was such a date in the life of ARMHY:http://finance.yahoo.com/q/bc?s=ARMHY&t=myNot really a good example at all. Let's look at Ryanair, March 2004:http://finance.yahoo.com/q/bc?s=ryaay&t=myBetter but not quite. How about NOK?http://finance.yahoo.com/q/bc?s=nok&t=myThe BMW Method people liked it. OVTI might qualify if it had enough history:http://finance.yahoo.com/q/bc?s=OVTI&t=5y&l=on&z=m&q=l&c=But let's get on with eBay. There is no way that eBay can continue to grow at the present rate for ever. At some point the market has to realize this and the stock is going to be severely punished. You can expect a 30 to 80% drop in the share price at some time in the future. When? I don't have a clue when but it will happen sooner or later.eBay has a fantastic business model that will continue to produce profits for a very long time to come but the stock price will have gotten ahead of itself for a variety of reasons -- the main one being human nature. When the stock price does collapse there will be a mini (or maxi) panic and the herd will stampede for the exits. That day or soon after will by the time to buy eBay safely.http://finance.yahoo.com/q/bc?s=EBAY&t=myThere you have it Hildy!Denny SchlesingerCaracas - Venezueladenny@softwaretimes.com
DENNY"eBay has a fantastic business model that will continue to produce profits for a very long time to come but the stock price will have gotten ahead of itself for a variety of reasons -- the main one being human nature. When the stock price does collapse there will be a mini (or maxi) panic and the herd will stampede for the exits. That day or soon after will by the time to buy eBay safely."That's why expect (hope) will happen.alexander
My old buddy Hildy (or should I say, my long time buddy Hildy? Both apply :) ) I think you have it correct Denny... old as in "olden"?! ;o)) But, all things being relative, what's a few years between friends... eh?Since I'm a little slow on the draw concerning EBAY, I haven't created a BMW Chart on them yet, (sometime today maybe) however, I did have a current (as of yesterday) version on NOK and if anyone is somewhat curious, go to "My Yahoo! Briefcase, and the BMW Charts folder and take a look, it may give you guys an idea about using the BuildMWell method too.http://f2.pg.briefcase.yahoo.com/tildetooWhen you look at the chart(s) these are based on monthly closing prices only, and the pink vertical dashed line is the "today" line in reference to last month (May 2004) closing price.If you have the Gebinr Excel spreadsheet template, you too can create your own charts, which is more informative than just looking at a static TICKER.GIF file as in the BMW Charts folder, at My Briefcase.By 'hovering' your mouse pointer on the Excel chart at various points you will get the popup 'info window', which is helpful in better understanding whats what.Anyways, if you're interested just jump over to the BMW Method board at the link in Denny's post."Youse a good boy Denny..." (Do you remember where that quote was used, and when... ;o)HINT: It WASN'T in the Katzinjammers Kids cartoon.http://www.irememberhamlet.com/comic.htmlCheers all;~hildy
Hi Hildy,Before Denny's post, I'd never heard of BMW charts. I'll be spending some time to study the methodology.While taking a look at a few charts, I wondered why a logarithmic price scale isn't being used. Why?TIA, Ron
I wondered why a logarithmic price scale isn't being used. Why?TIA, RonHi Ron;Well the short answer is, "because."This isn't really true though... Denny brought that up in a couple posts on the BMW Method board, and I think the simpler (real?) answer is because the way BuildMWell started looking at this approach when he developed it.BuildMWell used one of the chart.com sites and displayed 'all data' which would display a chart of the Ticker he was interested in (look at www.bigcharts.com ) and he'd print it out on his printer. Using his handheld calculator (scientific) he'd calc the X-Y points from the historical quote info., and 'plot' them onto the printed copy he made using a 'french' curve. (which really was a ship's curve - adjustable) This was BC (before computer) and unless you're an old guy like myself -and- an Engineering type, this sounds kinda archaic (which it is!) but "we" used to create all kinds of charts for all sorts of studies on the "drawing board."So this is the 'reason', however, I've got a beta version of a spreadsheet being developed by one of the 'creators' and it creates a Log chart just like Denny was talking about... (and you) It's not ready for "prime time" just yet, and I can't tell you much more than that...Clear as mud?I hope this helps you better understand what's going on Ron... and I'm sure it'll get better in the not too distant future.~hildy
"Youse a good boy Denny..." (Do you remember where that quote was used, and when... ;o)HINT: It WASN'T in the Katzinjammers Kids cartoon.~hildy Denny might be a dimwit but Google is real sharp! :))http://time-travelers.org/Review/dennydimwit.htmlI read and enjoyed the Katzinjammers Kids for years but in Spanish. The funny thing is that I didn't catch on to the meaning of the name until a German friend of mine used the expression while speaking in German. When there is a bunch of kids screaming and creating a racket a German might ask them: "What is this 'Katzenjammer?'" As in Katze = cat and jammern = wailing.You remember Katzinjammers Kids? You ARE old!Denny SchlesingerCaracas - Venezueladenny@softwaretimes.com
"This was BC (before computer) and unless you're an old guy like myself -and- an Engineering type, this sounds kinda archaic (which it is!) but "we" used to create all kinds of charts for all sorts of studies on the "drawing board.""LOL. I've still got 2 slide rules .. so I guess that means I'm not young either .. and maybe even an engineering type. I also remember manually charting stock prices on 11"x17" chart paper .. but even then it was "constant ratio", aka logarithmic, price scale.Thanks for the extended reply, Ron
When the stock price does collapse there will be a mini (or maxi) panic and the herd will stampede for the exits. That day or soon after will by the time to buy eBay safely.Absolutely!!! There are stocks that are expensive, and there are stocks that are expensive. Your Cisco's, MSFT's, of the world are always expensive, but golly EBay is something else. Market panic is almost inevitable at some point.BMW...hmmmm.Tinker
One thing that has worried me about EBay, and I've seen it with other companies, is that EBay is conducting extensive advertising campaigns. When a company that has grown through word of mouth and virally starts this, it usually means they feel they need to spend advertising dollars because the low hanging fruit is gone. I've seen this point in a company's development frequently indicate slower growth ahead. That could hammer EBAY somewhere down the road.Tinker
hi guys,Here is some eBay stuff I have been working on. I have posted in full below, but link is much better, because of tables, hyperlinks , etc. I am currently short eBay.http://www.rbcpa.com/companies/Ebaynotes.htmlJune 11, 2004 Notes to eBay presentation at Deutsche Bank Media ConferenceRajiv Dutta, CFO1. 105M users at the end of 1Q04. 45M active users at end of 1Q04. Listed 328M items during 1Q04. 2. Gross Merchandise Sales (GMS) is called the most important metric. $8B in 1Q04 , which is a $32B annual run-rate.3. Total PayPal payment accounts are at 45M. They claim that is an 85% three year compounded growth rate. $4.3B flowed through those accounts in 1Q04.4. eBay had $756M in 1Q04 revenues. Claims that is a 124% six-year compounded growth rate.5. With 105M users, eBay would be the 11th most populated nation in the world.6. Claims buyers tend to be value oriented. Oriented towards middle America.7. Calls eBay a $1.9 trillion opportunity, and that is based on "some analysis done way back in 2001 -2002 time frame. This got a little confusing, but Mr. Dutta claims that new services and such would add $1.5 trillion to that number, then add PayPal. Further in the discussion he says, " So, in order for us to make headway against this $3 trillion opportunity". 8. " This has actually been quite remarkable in terms of the velocity of this business, just the U.S. business. This is a young business, make no mistake about it, but in just a few short years, we have become, in terms of volume, ranking right up there with some of the largest retailers in the United States. In fact, we just overtook the Gap last year."9. " PayPal takes a transaction revenue on -- an average transaction is about -- a fee is about 3.6 percent on all the money that transfers through PayPal. We are up to 4.3 billion that went through in Q1. PayPal in fact collects about 3.6 percent. Now, of that, the transaction expense rate, which is about 1.25 percent, is actually influenced by what is the mix of those transactions? Are they credit cards? Are they bank accounts, or are they inter-account transfers within PayPal? What you will very quickly (indiscernible) of course is that while PayPal a merchant services fee on the credit card portion of the transaction, the bank accounts are very modest fees because of ACH transfers and of course, a PayPal-to-PayPal account transfer is actually -- there's really no transaction expense to eBay.On that, you have to then apply the transaction loss rate. There is a certain percentage of these transactions where there is a loss associated with it. That number has come down from around the 40 to 50 basis point range to most recently about 27 basis points, which then gives you the payment margin -- this is not (inaudible) the payment (inaudible) gross margins that we report on the side of about 58 percent -- very, very healthy business and a very strong business model."10. Claims that capital requirements are very low.11. Capital expenditures as percentage of sales are in single digits and heading down.12. " here's another thing -- when you look at eBay's P&L, you're looking at eBay's cash flow statements, because when we talk about investments, we're not talking about capital; we're talking about spending that shows up in the current period in eBay's P&L. That is actually pretty important point when you are comparing eBay to many other businesses. The investments in the business don't show up in the balance sheet, which often remains a mystery to a lot of people, but actually shows up directly on the P&L statement."13. Looking for future margin expansion in the long term future. Currently the focus is on top line growth and strategic investments. " What we've really decided is the right thing to do is to ensure that the leverage is on the top line and to ensure that we're not mortgaging the revenue growth of this business over a sustained period of time and on the bottom line, continue to show improvement."14. "We're going to be making significant investments in our businesses around the world" 15. Reaffirmed guidance of $3.15B in F2004 and operating margin of 34%. PayPal long term operating margin is targeted at 20 to 25%, as contrasted to eBay's 35 - 40%.16. ASP has been increasing.17. Now has 150,000 stores on a global basis.18. Claims China will be a large market. " Their gross merchandise sales is on a run-rate of about $200 million. I mean, this is getting to be a pretty good business pretty quickly." June 11, 2004 Some tables we worked on Consensus Revenue estimates are as follows: Year Q1 Q2 Q3 Q4 Fiscal Year 2003 476.49a 509.27a 530.94a 648.39a 2165.09a 2004 756.24a 770.71e 779.18e 907.88e 3214.01e 2005 994.60e 1013.10e 1025.90e 1173.65e 4207.25e Consensus earnings per share (eps) are as follows: Year Q1 Q2 Q3 Q4 Fiscal Year 2003 0.16a 0.14a 0.16a 0.21a 0.67a 2004 0.30a 0.27e 0.27e 0.33e 1.17e 2005 0.38e 0.38e 0.38e 0.45e 1.59e The above are merely consensus estimates as of June 11, 2004. We have recently seen sell side firms projecting eps at $1.58 to $1.61 for F2005, and revenue estimates of $4254.8 to 4258.4 for F2005. We have been reading a JP Morgan report dated June 7, 2004. Here are some notes we took while reading the report. a. believes that eBay has 14% user penetration in U.S. b. expects better than expected improvement on average selling price (ASP) on eBay to increase 5% by end of F2005. c. expects margins to improve. d. expects strong international business, with both eBay and PayPal. e. expects strong growth in U.S. market. expects U.S. online revenue growth of 38% in F2004 and 37% in F2005. f. long term eps growth is targeted at 40% and F2005 est is $1.61. g. feels company has pricing power, feels growth will not slow and that growth in broadband market will fuel growth. h. Initiates coverage with an Overweight position. June 10, 2004The following are some "back of the envelope analysis" on various potential eBay valuations. We were trying to work through a valuation scenario, whereas one can project revenues and net income for a period in the future. We used an arbitrarily assigned year of 2010. In doing this task we used various projections going forward till 2010. Of course such projections on a company that is as new and as dynamic as eBay, has its inherent faults. One fault could be the materially incorrect use of revenue and net income projections. Nevertheless, these are all hypothetical assumptions. For us they are a roadmap until future data comes along. 1. We think that one can assign a discounted multiple of say 3X - 5X of mature gross revenues. Currently eBay is trading at multiples of approximately 26X F2003 trailing revenues. The question is, what do you expect mature revenues to be? If you felt for example that revenues would be $20B in F2010, you could assign a market cap of $100B in 2010, using 5X revenues (7 years from now). Keep in mind that $20B as future revenues would be an annualized revenue increase of 37.38% for each of the next 7 years. 2. The following are some hypothetical assumptions and calculations: a. Gross Revenues for F2010 $20.0B b. Net income, we will use 26% of projected F2010 Revenues. This computes to net income of $5.2B. Keep in mind that this net income figure, does not include the expensing of stock options. We believe that the current FASB proposal on including stock option compensation expense in earnings calculations, will become a certainty in financial reporting. For this exercise, we have ignored stock option expense. Again, keep in mind that if stock option compensation were treated as an expense, net income would be materially reduced. The following is a table which compares "as reported eps" to "effect on eps if options were expensed as compensation". We took this information from the F2003 10-K and the F2000 10-K. The table below has been adjusted for stock splits. Fiscal Year eps as reported effect on eps if stock options were expensed as compensation as per SFAS 123 1998 $0.02 $0.02 1999 0.02 (0.09) 2000 0.09 (0.18) 2001 0.16 (0.22) 2002 0.43 0.11 2003 0.67 0.37 Totals 1998 - 2003 $1.39 $0.01 c. For market cap on revenue multiple for F2010, you would get $20B X 5 (multiplier assigned above) = $100B. d. For market cap on earnings multiple, lets assign mature p/e of 25. You would get a market cap of $130B, using the $5.2B in eps. e. Again, for argument sake, let's use market cap of $130b, which is using the eps multiplier and not the revenue multiplier. f. We now have to project fully diluted shares.If you count the current shares of 673,798,000 and compound them by 4% each year for 7 years, you get a share count of 886,672,000 shares. We think that 4% annualized future dilution is very conservative, but let's go with it.If we take market cap of $130B / projected shares outstanding of 886,672,000 you get future share price in year 7 of $146.62. If you put $146.42 as Future Value in your calculator, 7 years as the term, current share price of $87 as present value, the compounded calculated rate of return would be 7.74%. Sure seems like a lot of optimistic reasoning has to occur to be willing to take such risks for an optimistic expected return of 7.74%. Let's change around the assumptions a bit for a different look at eBay's valuation. Here are different assumptions for F2010. a. Gross revenues stay at $20B, yet revenue multiplier gets reduced to 4X b. eps gets reduced to 20% of Gross Revenues fro F2010, making net income $4B. Notice from the table below that Net Income has never exceeded 20.60%. Net Profit Margin as reported by eBay Fiscal Year Net Income as percentage of Revenues 1999 4.82% 2000 11.19% 2001 12.08% 2002 20.58% 2003 20.40% c. fully diluted shares increase by 5%, they become 948,101,000.Fully Diluted Shares outstanding ('000) as reported by eBay December 31, 2001 561,190 December 31, 2002 585,640 December 31, 2003 656,657 March 31, 2004 673,798 d. reduce p/e to 20 from 25. Hence, based on revenue multiplier of 4X, you get $80B market cap. Based on p/e of 20, you get the same $80B market cap.Divide $80bil by 948,101m shares, you get market price in F2010 of $84.38. If you put $84.38 as Future Value in your calculator, 7 years as the term, current share price of $87 as present value, the compounded calculated rate of return would be (0.44%). Keep in mind that the future value is less than the current stock price. Again, the above calculations were performed with the intent of accuracy. If you find errors in our calculations, please contact us. These calculations are "back of the envelope" and are put here for discussion purposes only. Please refer to the disclaimer at the bottom of this page. June 7, 2004 How does eBay generate cash flows? Is cash flow primarily generated from their very own employees? The following is a table we constructed. Notice how eBay has generated free cash flow of $310,351,000 since inception. Also notice that the cash generated from receiving cash from their employees was $1,140,344,000. This is an interesting scenario. One could interpret that eBay is collecting more money from their very own employees, than they are from the cash generated in operating their business.eBay is collecting more money from their very own employees than they are from their operating business. This is ongoing, and why wouldn't it be included in trying to determine a truer picture of where cash is coming from. This is not occasional financing and such. We have not included any dilution effects. Keep in mind that eBay has not bought back any treasury stock since inception. ($'000) 1998 1999 2000 2001 2002 2003 1998 - 2003 Cash flow from Operations 6,041 62,852 100,148 252,112 479,903 874,119 1,775,175 Subtract: Tax Benefits 0 11,104 37,483 81,705 91,237 130,638 352,167 Capital Expends. 12,758 86,907 49,753 57,420 138,670 365,384 710,892 Acquisitions 1,248 7,159 5,850 111,730 59,411 216,367 401,765 Free Cash Flow 7,965 42,318 7,062 1,257 190,585 161,730 310,351 Annual eBay Stock Option ProceedsFiscal Year ($'000) 1999 18,106 2000 45,530 2001 123,710 2002 252,181 2003 700,817 Total 1,140,344 As you can see from the above, we have been trying to determine if eBay makes most of her money from operations or from receiving cash when their very own employees, when they exercise their options. Through our search so far, we have only found that eBay seems to be making most of their money on employee options being exercised. We are open to the possibility and even likelihood that our analysis might be flawed. We write that because, we have seen no sell side analysts having discussed this. We find that odd. This omission leads us to think that we have made a material error in our analysis. We have read Albert Meyer, of www.2ndopinionresearch.com discuss this at length. Of course, they are not sell side analysts. We still need to reread and reinterpret Albert Meyers work. Yet, we think that we are both saying very much the same thing. His work on employee options has been extensive, whereas ours is still in the infancy stage.This is real difficult for a common investor to understand. Here is an easy analogy on how the exercising of options generates cash flow for eBay. We have not even included the cash benefit that the US Government gives eBay in the form of tax deductions on the payroll taxes accompanying this. As I write this, I think of once again, how interesting it is that the IRS calls options exercising payroll, whereas GAAP does not.Here is a scenario to help you understand.1. You are a boss. You pay your employees money for them to work for you. That is an expense. Of course this expense reduces net income (eps).2. eBay does the above, no problem. We have no idea if they are paying market wages, or below market because of employee stock option enticement.3. Let's expand on item 1. Not only does an employee receive cash wages, but the employee often will also have the right, for example to buy 20,000 shares from eBay at say $20. Employee, then can sell shares to open market via Waterhouse, Ameritrade, etc for $88 per share. Interesting what happens here. Employee hands over to eBay $400,000 to get their stock that they just bought from eBay (at a price well below market). Employee is cool with that because they turnaround and can immediately sell what they just paid $400,000 for $1,600,000. Do you see what might be happening here? Is eBay getting paid to have employees? Would you as a boss, like to have your very own employees pay you to work for you? eBay via a proxy filing is asking for a greater amount of option shares. Is the cash generation the reason eBay wants more employee options in Proxy? Here are some cut and pastes of that proxy filing. The cut and pastes are not pasted in their entirety. Please refer to the actual DEF 14A which was filed with the SEC on May 17, 2004. 1999 Global Equity Incentive PlanTo approve amendments to our 1999 Global Equity Incentive Plan, including an amendment to increase by 6,000,000 the number of shares of common stock that may be issued under our 1999 Plan.GENERAL The 1999 Plan provides for the grant of stock options, stock bonuses, and restricted stock purchase awards, which we refer to collectively as awards. Options granted under the 1999 Plan are not intended to qualify as incentive stock options under the Internal Revenue Code. PURPOSE The purpose of the 1999 Plan is to provide a means by which employees and consultants in countries other than the United States may be given an opportunity to purchase our common stock. We believe that the 1999 Plan assists us in retaining the services of such persons, in securing and retaining the services of persons capable of filling such positions and in providing incentives for such persons to exert maximum efforts for our success. We may also choose to grant awards under the 1999 Plan to employees and consultants in the United States. STOCK SUBJECT TO THE 1999 PLAN Assuming adoption of this Proposal 2, we have reserved an aggregate of 26,000,000 shares of our common stock for issuance under the 1999 Plan. As of April 30, 2004, there were 8,275,335 shares to be issued upon the exercise of outstanding options under the 1999 Plan and only 8,595,832 shares were available for future grant under the 1999 Plan from the 20,000,000 shares previously approved by our stockholders. If options granted under the 1999 Plan expire or otherwise terminate without being exercised, the shares of our stock not acquired pursuant to such options again become available for issuance under the 1999 Plan. As of April 30, 2004, the closing price of our common stock as reported on the Nasdaq Stock Market was $80.03 per share. PARTICIPATION IN THE 1999 PLAN The grant of stock options under the 1999 Plan to executive officers, including the executive officers named in the Summary Compensation Table set forth under “Executive Compensation — Summary of Compensation,” is subject to the discretion of the Board. During 2003, no options were granted to executive officers or directors, and options to purchase 3,871,664 shares at a weighted average exercise price of $48.40 were granted to other employees under the 1999 Plan. During this period, options under the 1999 Plan to purchase an aggregate of 301,929 shares were cancelled. Since the 1999 Plan's inception, none of our current directors have been granted options to purchase shares under the 1999 Plan. As of December 31, 2003, the weighted average exercise price of outstanding options under the 1999 Plan was $39.15. As of the date hereof, there has been no determination as to future awards under the 1999 Plan. Accordingly, future benefits or amounts received are not determinable. AMENDMENT TO 2001 EQUITY INCENTIVE PLAN3. To approve an amendment to our 2001 Equity Incentive Plan to increase by 18,000,000 the number of shares of common stock that may be issued under our 2001 Plan.GENERAL The 2001 Plan provides for the grant of incentive stock options and nonstatutory stock options. Incentive stock options granted under the 2001 Plan are intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code. Nonstatutory stock options granted under the 2001 Plan are not intended to qualify as incentive stock options under the Code. We have not granted any incentive stock options since our initial public offering. PURPOSE The purpose of the 2001 Plan is to provide a means by which eligible employees, directors and consultants of eBay and its affiliates may be given an opportunity to purchase our common stock. We believe that the 2001 Plan assists us in retaining the services of such persons, in securing and retaining the services of persons capable of filling such positions and in providing incentives for such persons to exert maximum efforts for our success. STOCK SUBJECT TO THE 2001 PLAN Assuming adoption of this Proposal 3, we have reserved an aggregate of 96,000,000 shares of our common stock for issuance under the 2001 Plan. As of April 30, 2004, there were 49,826,806 shares to be issued upon the exercise of outstanding options under the 2001 Plan and only 16,969,618 shares were available for future grant under the 2001 Plan from the 78,000,000 shares previously approved by our stockholders. If options granted under the 2001 Plan expire or otherwise terminate without being exercised, the shares of our common stock not acquired pursuant to such options again become available for issuance under the 2001 Plan. As of April 30, 2004, the closing price of our common stock as reported on the Nasdaq Stock Market was $80.03 per sharePARTICIPATION IN THE 2001 PLAN The grant of stock options under the 2001 Plan to executive officers, including the executive officers named in the Summary Compensation Table set forth under “Executive Compensation — Summary of Compensation,” is subject to the discretion of the Board. During 2003, all current executive officers as a group, including the Named Executive Officers, and all other employees as a group were granted options under the 2001 Plan to purchase 3,210,000 shares at a weighted average exercise price of $40.58 and 19,468,954 shares at a weighted average exercise price of $45.35, respectively. During this period, options to purchase an aggregate of 3,243,850 shares under the 2001 Plan were cancelled. Since the 2001 Plan's inception, none of our current directors, with the exception of Ms. Whitman, has been granted options to purchase shares under the 2001 Plan. As of December 31, 2003, the weighted average exercise price of outstanding options under the 2001 Plan was $37.53. As of the date hereof, there has been no determination as to future awards under the 2001 Plan. Accordingly, future benefits or amounts received are not determinable. This is interesting stuff. We look forward to our continued research. June 4, 2004 Items we need to further reviewThe following is a list of items I need to look at closely. A. Ratio analysis. Focus on all ratios. Look closely at ROE and intangibles. Look for potential aggressive areas, such as Goodwill and allowances. Try to extend this analysis to all reporting quarters, by looking at 10-Q's. B. Review Stockholder's Equity section for "Unearned Compensation". C. Review loans to officer's policies. A number of them exist as described in SEC filings. D. Review SEC filings for "Share Based Payments". How does this affect if at all earnings per share and cash flow. E. Keep in mind during analysis that company has projected F2004 capex to be $250M, whereas $70M was paid so far in 1Q04.June 2, 2004 Discussion on eBay listings strengthWe have been reading that listings have been strong, and perhaps 3% greater than last quarter. That may be a reason for the run up in the stock over the last two weeks. Half.com stores are now migrated over to eBay. We have read that there are now lower store prices, hence the listing size increase may be larger than the future comparable QoQ revenue increase. It is our understanding that eBay ran a promotional free store listing campaign last week, and that also could account for the increased listings. We expect to see some sell side "upgrades" over the next week or so. Most targets have been hit, and we imagine that those targets are under review. May 31, 2004 eBay generating cash from their own employees?I need to verify the following paragraph. I think that the average and typical eBay employee is getting benefits of options. I think I read, and I could be wrong on this entire paragraph, that the typical employee received around $109k in benefits over the years. Think about it, in F2003 alone, eBay corporation brought in over $700 million dollars from their very own employees. I figure that the employees were cool with that, since they probably cashed out to the secondary market (NASDAQ) for about $1.5 to 2.0 Billion. 2. eBay as far as I can see is making a ton more money from employees paying them for the shares( can anyone direct me to where I can get paid by my employees, please let all applicants know that we will pay for coffee (as long as it is reasonably priced)) than they are via there yard sale business. nothing wrong with a global yard sale business. I just gather that most eBay investors think that the cash in the balance sheet is being generated operationally and not via employees kicking in their dollars.3. Investors don't mind, since they are raking up huge annual returns. at some point investors might get concerned that they weren't fully presented with the big picture, plus all the dilution that has been caused. I suspect dilution will grow the next reporting quarter because of the huge increase in stock price and possibly much more stock being cashed in with such a generous price.4. I even read today, where eBay can generate greater eps, buy paying their employees less and hence compensation would go down. they would be able to do this by being "less stingy" with their options. Of course, the writer was being sarcastic, but his point is , who cares, since this thing is so out of hand anyway.I want to add that I don't think this is an eps issue, nor a quality of earnings issue. I think it is merely a cash flow issue. The major issues for shareholders in my mind are the following:1. are shareholders familiar that much of the cash on eBay's balance sheet is from employees paying eBay for their options (say $20 per share) and then immediately turning around to the secondary market( NASDAQ) and selling for $80+ per share. Do shareholders think that the cash hoard is from operations or from employees? Again, I would love to have a company where my employees paid me, instead of the traditional visa versa.2. FASB has come out with exposure drafts which will change the expensing a bit. It will bring the expensing to the body of the financials instead of the footnotes in proforma form. This will certainly reduce reported eps.3. FASB at the same time will be taking tax benefits of stock option compensation out of operating cash flows. Hence, operating cash flow per share will reduce within the body of Statement of Cash Flows.4. Dilution is growing at a 5 to 10% annual rate for eBay. On the high side that is additional market capitalization of $6 billion.I am scouring the SEC filings and will have more to write as time goes on. May 30, 2004 Some analysisFrom the F2003 10-k we see the following regarding Federal Net Operating Losses Carry forwards.NOL's are as follows12/31/03***502.612/31/02***559.412/31/01***345.112/31/00***274.9earnings per share in the same periods were:12/31/03***0.6712/31/02***0.4312/31/01***0.1712/31/00***0.17It appears that most of the Federal Net Operating Losses Carryforwards is being caused by stock options expensing and such. It is just real interesting that during the past 4 years, eBay has accumulated Gaap earnings per share of 1.46 per share, while at the same time, eBay has generated tax losses of of at least $227m. May 29, 2004The following is some quick and sloppy work. I posted this on May 27th and May 28th and made a material error in the cash flows for 1Q04. It has been corrected below.I have been looking at statement on cash flows. For fiscal 2003, I worked with the following:Net Cash Provided by operating activities***874,119I then subtract the following for quality of earnings and regular items:Stock Based Compensation***5,492tax benefit of options***130,638capex***365,384proceeds from stock issuance***700,817When you total that you get cash used of (317,228)************************************************************When looking at 1Q04 we get:Net Cash Provided by operating activities***366,245I then subtract the following for quality of earnings and other cash flows, including receipts of monies from employees:Stock Based Compensation***556tax benefit of options***76,640capex***70,912proceeds from employees for stock issuance***173,089When you total that you get cash provided of 45,048********************************************************************Ebay seems to be receiving more cash from employees exercising options, than it does from its operations. I don't see where EBAY has bought back any stock. Hence, dilution and cash flow grows. Interesting, if we multiply projected shares outstanding of 700,000 * 87.42 share price (and growing), you get market cap of $61bil. This is 19X projected F2004 revenues using $3,209b est and 14X projected F2005 revenues if using $4,252b. 1. eBay generated $700,817,000 in F2003, just by employees paying Ebay for stock, and then the employees would generally go to the open market and sell to the likes of this stock to you and me for say $3,500,000,000 ( i am assuming that I have that correct, I could be real wrong). Hence , part of what I was thinking is what it really sounds like it is a "return of compensation", almost like eBay is getting paid to have these employees.2. I am assuming that cash compensation to eBay employees is lower than normal, which increases eps, because the employee is rewarded heavily with stock options. Heck, if I worked at Ebay and felt I was worth a compensation package of say $100k. I wouldn't care if I was paid say $5k in cash, as long as I ultimately received another $95k in gains on options. I could be wrong, but I sense that the employees are currently getting a lot more than my example. The following are links to two interesting articles on eBay and some of their accounting situation.www.accounting.smartpros.com/x38189.xml "Ebay's Stock Options: How to Transfer Wealth From Investors to Employees"www.accounting.smartpros.com/x38271.xml "Ebay's Unannounced Restatement of Earnings"It seems like eBay is making most of her dollars from employee exercises and Uncle Sam as opposed to her operations. Yet, she is also investing in her infrastructure which could just produce mounds of cash in the future. Hence this is not a clear cut or easy answer.
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