Media companies of all kinds are expected to struggle this year for many of the same reasons, but Collins Stewart analyst Sandeep Aggarwal says eBay (NSDQ: EBAY) has some unique problems that could cause it to flail more than many of its competitors.
Aggarwal made calls and other "channel checks" to gauge how robust eBay's business was during the first quarter of 2009, and the news wasn't encouraging. He says eBay's Marketplace will lose market share to other commerce companies and could suffer a drop in profit margins as well. Aggarwal says the company is selling more goods for a fixed price, which is outside its sweet spot of online auctions. That has caused some customers to leave eBay for Amazon (NSDQ: AMZN), he says. In addition, discounts and promotions from eBay meant to lure customers back from Amazon have cut into margins. According to Aggarwal's report, fixing these issues is apt to be a "long and arduous" process.
Though many comparison-shopping sites rebounded in the fourth quarter 2008, Aggarwal says eBay's Shopping.com didn't get the same kind of uptick; he says that's because merchants weren't happy with the economics of the site. In particular, businesses complain that the rates Shopping.com charges them to refer traffic to their sites are too high.
eBay is still having a hard time figuring out how to incorporate Bill Me Later into its operations. Aggarwal conceded that BML converted more users to customers than PayPal, but said eBay will likely continue to struggle integrating the business (acquired for $820 million in October 2008) throughout this year and into next.
Those operational problems combined with Aggarwal's view that eBay shares are overvalued after a 50% increase over the past five weeks led him to downgrade the shares to a "sell."
By Rory Maher