eBay's Stock Price –Will it recover anytime soon?

If you own or watch eBay’s stock you have seen almost 30% of your value erode over the past year. The stock has started to rebound lately, but it keeps getting hammered by the general market malaise. As I write this, the market was down 184 points on the Dow and eBay’s stock was off $1.31 after rising the last few days. May is traditionally one of the worst month’s for the market. This is coupled with fears of rising interest rates and high oil prices. Eventually these things get priced into the market and the fears ebb. Also, the economy is strong, corporate profits are at record levels and corporations, including eBay, are fat with cash.

So what does the Yahoo deal mean for eBay’s long term prospects?

The obvious synergies come form the massive online advertising that eBay brings to the relationship. eBay is currently Goggle’s biggest customer. They will still remain a large customer, but a lot of eBay’s money will find its way to Yahoo. For eBay, Yahoo will now use eBay’s PayPal exclusively for third party payments. PayPal will be integrated into Yahoo as seamlessly as it is in eBay. This is a huge deal for eBay and could almost double PayPal’s revenues over time.

eBay and Yahoo will also share toolbars that can be downloaded into web browsers. This will allow users to easily switch between eBay’s auction and Yahoo’s search engine. As a co-branded toolbar solution it’s a good move for eBay since the Yahoo site has a huge volume of traffic and provides a logical and prominent branding location on the net. This will drive more natural (free) traffic to eBay which benefits both eBay and the sellers.

One of the more interesting aspects of the relationship is between eBay’s Skype and Yahoo’s instant messenger (IM). Yahoo can use Skype’s click-to-call feature to connect customers directly with advertisers. This is an area eBay has targeted as a use for Skype. But eBay has also touted Skype as a way to get into the “cost per click” advertising model that has been the domain of Google and Yahoo. eBay’s ambitions in this area required a partner with a an existing online search model to really be effective. Google is testing similar functionality as cost per click on the VOIP model but Skype is ahead in that game. So this is a long-term winner for eBay.So far this deal looks to be good for both parties, but I see eBay as getting the most out of this in the short term whereas Yahoo’s gains will come over time. This should be good for eBay’s stock. So my counsel is to be patient. eBay is an obvious buy at any price near $30 a share. But in this market environment this is a long-term investment –the gains will come but you may have to be patient.

The other rumor affecting eBay’s stock price is a pending change in management. The buzz on the eBay campus in San Jose is that Meg will be retiring soon and Bill Cobb, the heir apparent, will take over. Meg has been grooming Bill for this job but it is not clear what he will do differently once he actually takes over. It’s not that Meg has done a bad job –she hasn’t. But Wall Streets likes this change. When Meg steps down it could add anywhere from 2% to 5% to the current stock price.

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