Ebay Growth Slows to Trickle

Things are looking bleak at Ebay. In their case you get a triple hit:

1. Online auction leader eBay Inc warned in an annual report Friday that it faces difficulty getting former customers to return, adding to the normal challenge of attracting new users to its sites.
-First they can't get old users to come back as well as get new users to try the site. I think there are quite a few people out there that have 4-5 year old accounts and have maybe bought one or two things and then left. There is really no reason to come back to the site only to get sniped a few seconds before they are about to win a bid.

2.Adding to the risks in the coming year is expected weaker consumer spending in each of these three major markets, it said. At the same time, overall growth in the e-commerce market is expected to continue to decelerate, the company cautioned.
-I think that weaker consumer spending will hit Ebay right in the face. I don't think a consumer would go all out to buy a Hopalong Cassidy lunchbox when they can barely pay their mortgage. I also don't think e-commerce in general will weaken as much as they think. Thrifty people will still purchase things online if they can get free shipping or a 30% discount like on Amazon, Big Lots, etc. Consumers will still want to buy things and e-commerce will save that person on gas from going to the mall and provides them savings all in one.

3. Jeffries & Co analyst Youssef Squali said the pessimistic language eBay uses to describe its business prospects reflect a growing awareness that eBay is no longer the only game in town for merchants. Rivals such as Amazon.com are enjoying surging growth in its merchant business as eBay slows.
This one is the scariest things if you were long Ebay. When merchants leave your site they will probably not be coming back anytime soon. That is unless you cut your fees drastically. So you end up losing that person and have to cut margins to bring them back. These merchants may not even come back depending on what Amazon does to counter your fee cuts. I mean AMZN has a retail business to fall back on so they can afford to loss-lead while fees are Ebay's lifeblood.

The worst thing about Ebay is that the stock still seems to be overvalued. You end up paying a 102.17 P/E for 26% revenue growth that will keep dropping year over year unless they cut margin (or buy some non-core e-commerce growth) to compete. Also they end up losing buyers and have a hard time bringing in new ones as well. Add a further drop off in consumer spending and this stock might be in the mid-teens later this year.