You are on page 1of 33

Thinh Tran

Tu Nguyen
John Koong
Naco Chen
George Chou
eBay’s mission is to build the
world’s most efficient and
abundant marketplace in which
anyone, anywhere, can buy or sell
practically anything.
History
 eBay Inc. was formed as a sole
proprietorship in September 1995
and was incorporated in California
in May 1996. In April 1998, eBay
reincorporated in Delaware and in
September 1998 eBay completed
the initial public offering of their
common stock.
Present
As of December 31, 2003, through wholly
owned and majority-owned subsidiaries
and affiliates, eBay had Websites directed
toward the United States, Australia,
Austria, Belgium, Canada, China, France,
Germany, Hong Kong, Ireland, Italy, The
Netherlands, New Zealand, Singapore,
South Korea, Spain, Sweden, Switzerland,
Taiwan and the United Kingdom.
38th
Richest
person in
the world
with net
worth of
$5 billion
according
to Forbes
Founder & Chairman
Pierre M. Omidyar founded eBay
as a sole proprietorship in
September 1995. He has been a
director and Chairman of the
Board since eBay's incorporation
in May 1996 and also served as
its Chief Executive Officer, Chief
Financial Officer and President
from inception to February 1998,
November 1997 and August
1996, respectively.
Officers & Compensation
Whitman, Margaret C……………………………… $2,191,976.00
President & CEO
Bannick, Matthew J. ………………………………………
Senior Vice President and General Manager, Global $1,021,605.00
Online Payments and Chief Executive Officer of
PayPal
Cobb, William C. …………………………………………….
Senior Vice President and General Manager, eBay
International $753,591.00
Webb, Jr., Maynard G………………………………
Chief Operating Officer
Jordan, Jeffrey D…………………………………….
Senior Vice President, eBay North America $1,849,617.00

$1,298,928.00
Profile
eBay Inc. developed an Internet-based
community in which buyers and sellers
are brought together to buy and sell
almost anything. The eBay online
service permits sellers to list items for
sale, buyers to bid on items of interest
and all eBay users to browse through
listed items in a fully automated,
topically arranged service that is
available online seven days a week.
Online Auction
REVENUE BY PRODUCT CATEGORIES
(by percentage)
INDUSTRIAL
CAMERAS 4%
4%
JEWELRY
5%
MOTORS
TOYS 29%
5%

HOME/GARDEN
6%

COLLECTIBLES J
6%

SPORTS COMPUTERS
7% 9%

MOVIES/MUSICS CONSUMERS/ELECTRONICS
8%
CLOTHING/ACCESSORIES
9%
8%
INDUSTRY COMPARISON OF RETAIL SPECIALTY MARKETS

$60,000.00

$50,000.00
DOLLARS (millions)

$40,000.00

$30,000.00

MARKET CAPITAL
$20,000.00

$10,000.00

$-
AY O
N
T C
LES T H
A ND
EB AZ O
S AP B
D YO
AM C O ST E
B BE
COMPANY &
INDUSTRY COMPARISON OF RETAIL SPECIALTY MARKETS

BED BATH AND BEYOND


9%

STAPLES
12%

EBAY
46%

COSTCO
16%

AMAZON
17%
Growth rates % (Strength)
 Compan  Industry  S&P 500
y
Sales 58.70 27.80 11.20
(Qtr vs year ago qtr)
EPS (YTD vs YTD) 92.10 NA 31.20
EPS (Qtr vs year ago qtr) 92.10 NA 31.20
Sales 82.55 16.51 5.12
(5-Year Annual Avg.)
EPS 109.17 NA -3.24
(5-Year Annual Avg.)
Dividends NA NA 1.71
(5-Year Annual Avg.)
Price Ratios
Price Ratios (Strength)
 Company  Industry  S&P 500

Current P/E Ratio 82.1 NA 21.3

P/E Ratio 5-Year High NA NA 64.8

P/E Ratio 5-Year Low 49.6 NA 16.5

Price/Sales Ratio 19.12 4.73 1.49

Price/Book Value 9.67 5.64 2.91

Price/Cash Flow Ratio 71.60 89.90 12.70


Profit Margins % (Strength)
   Compan  Industry  S&P 500
y
Gross Margin 87.8 54.3 48.0
Pre-Tax Margin 29.3 1.2 10.9
Net Profit Margin 23.7 -1.9 7.2
5Yr Gross Margin (5- 86.9 53.2 47.5
Year Avg.)
5Yr PreTax Margin (5- 27.6 -66.6 9.2
Year Avg.)
5Yr Net Profit Margin (5- 17.7 -66.7 5.6
Year Avg.)
Financial Condition (Strength)
 Company  Industry  S&P
500
Debt/Equity Ratio 0.00 0.22 1.23

Current Ratio 2.8 2.4 1.5

Quick Ratio 2.4 2.2 1.0

Interest Coverage 119.9 2.0 3.3

Leverage Ratio 1.2 1.7 6.0

Book Value/Share 8.15 3.03 11.77


Investment Returns %
(Weakness)
 Compan  Industry  S&P
y 500
Return On Equity 12.0 NA 14.2
Return On Assets 9.9 -1.3 2.4
Return On Capital 12.0 -1.8 6.3
Return On Equity (5-Year Avg.) 7.2 NA 12.1

Return On Assets (5-Year Avg.) 6.1 -30.2 2.0

Return On Capital (5-Year 7.1 -42.3 5.7


Avg.)
Management Efficiency
(Strength)
 Company  Industry  S&P
500
Income/Employee 113,000 -6,000 23,000

Revenue/Employee 475,000 310,000 315,000

Receivable Turnover 8.9 10.5 7.1

Inventory Turnover NA 25.3 7.9

Asset Turnover 0.5 0.7 0.4


Market Capitalization
Last Trade: 82.33 Day's Range: 77.92 - 79.37

Trade Time: Jul 07 52wk Range: 49.87 - 94.13

Volume: 6,410,703
Change: 1.14 (1.43%)
Avg Vol (3m): 8,776,227
Prev Close: 79.47
Market Cap: 51.49B
Open: 79.29
P/E (ttm): 82.11
Bid: 46.61 x 100
EPS (ttm): 0.954
Ask: 110.29 x 100 Div & Yield: N/A
Holding Period Return
2004 2003 2002 2001 2000
(12/31)
Background Analysis:

HPR = Ending Price – Beginning Price +


Distributions 0.3421 0.9053 0.0138 0.0136
Beginning Price

Earnings 0.5906
growth
rate
estimate
(2004)
Dividend 0 0 0 0 0
Price 86.71 64.61 33.91 33.45 33
HPR 0.3421 0.9053 0.0138 0.0136 

(expected)
Free Cash Flow to Equity
2004 2003 2002 2001 2000

NI 441,771 249,891 90,448 48,294

(+)Deprecitaion 159,003 76,576 86,641 38,050

(-)Capital Expenditures 581,751 161,907 166,323 49,753

(-)∆ in working capital 416,372 378,568 165,644 165,756

(+) ∆ in long-term debt 110,678 1,790 604 -3,614

FCFE -117,363 -286,671 -212,218 -154,274 -132,779


(Thousand) (Thousand) (Thousand) (Thousand) (Thousand)
Risk Analysis
2004 2003 2002 2001

Beta eBay 1.5877 1.7072 2.7586 3.3931


Beta= COV(RIBM , RS&P500 )/VAR(RS&P500 )

Unlevered Beta 1.5112 2.5398

[Equity/(Equity +((1-T)Debt))]* BetaEquity=Beta_unlevered


Discounted Cash Flow Model
2004(7/15) 2003 2002 2001

FCFE -117,363,107 -286,671,000 -212,218,000 -154,274,000


12/31/2004

shares outstanding 657,400,000 649,293,000 311,277,000 277,259,000

G 0.5906 -0.3508 -0.3756 -0.1619


12/31/2004

P 83.46 64.61 33.91 33.45


7/15/2004

Ke(required return on 0.5885 0.5878 -0.3780 -0.3985


equity)
CAPM 2004(7/15) 2003 2002 2001

Rf 0.0125 0.0102 0.0163 0.0386

Rm-Rf 0.0185 0.3206 -0.2261 -0.1511

Beta 1.5877 1.7072 2.7586 3.3931

Ke(required return on 0.0419 0.5575 -0.6074 -0.4741


equity)

The company is currently underpriced because Ke( DCF model) >


Ke(CAPM); 0.5885>0.0419
Market Efficiency

 June 23, 2004.


Ebay announces
the eBay solutions
directory, a new
online directory of
software and
services that
supports trading
activity on the
World’s Online
Marketplace.
 WEAK FORM
 June 3, 2004
OPEC
announces oil
production
increase up to 2
million barrels a
day in July
2004.
 NO FORM
Cost of Capital and Optimal
Capital Structure
2003 2002 2001

We= Equity/(Equity+Debt+Preferred Stock) 0.8413 0.8803 0.8514

Wd=Debt/(Equity+Debt+Preferred Stock) 0.1587 0.1197 0.1486

Wp=Preferrd stock/(Equity+Debt+Preferred 0.0000 0.0000 0.0000


Stock)
Ke 0.2400 0.1500 0.0900

Kd 0.2374 0.1081 0.0347

Kp 0.0000 0.0000 0.0000

WACC=We*Ke + Wd*kd*(1-T)+ WACC 0.2278 0.1402 0.0792


Wp*Kp
e B ay C a p ita l S tru ctu re

0 .2 5 M&M 0 .2 2 7 8
0 .2

0 .1 5 0 .1 4 0 2
WACC

W A CC
0 .1
0 .0 7 9 2
0 .0 5

0
0 .1 0 .1 2 0 .1 4 0 .1 6 0 .1 8
D /T A
Current Capital Structure Industry Capital Structure

18%

Equity Equity
Debt Debt

100% 82%
Strengths

 High growth
 Positive HPR
 Very low debt
 Under priced
 High profit margins
Weakness
 Return on Equity
 Beta slightly high
Expert Analyst
Conclusion
We recommend that
investors BUY shares of
eBay common stock