EBAY INC. $30 - Nasdaq symbol EBAY

EBAY INC. $30 (Nasdaq symbol EBAY; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 1.3 billion; Market cap: $39.0 billion; Price-to-sales ratio: 3.6; No dividends paid; TSINetwork Rating: Above Average; www.ebay.com) operates the world’s largest online auction website, with over 99 million users in 39 countries. The company charges users fees to list and sell their goods through its websites.

The company also operates several other websites, including StubHub (live event ticket sales), Shopping.com (comparison shopping) and Rent.com (apartment and house rentals).

In all, these websites account for 55% of eBay’s overall revenue. The company gets a further 35% of its revenue by processing online financial transactions, mostly through its PayPal subsidiary.

Solid foothold in the business market

The remaining 10% of its revenue comes from GSI Commerce Inc., which eBay bought for $2.4 billion in June 2011. GSI, which has over 500 business clients, sells services that help its customers process orders from their websites and increase their online sales.

eBay’s revenue rose 53.4%, from $6.0 billion in 2006 to $9.2 billion in 2010. Much of this growth came from smaller e-commence companies that eBay bought. The company’s 2011 revenue will probably rise to $11.5 billion.

Earnings rose 58.0%, from $1.1 billion in 2006 to $1.8 billion in 2008. Earnings per share rose 72.2%, from $0.79 to $1.36, on fewer shares outstanding. Earnings fell 25.2% in 2009, to $1.3 billion, or $1.02 a share. That’s because eBay sold 70% of Skype, which lets users make free voice and video calls over the Internet. eBay received $2.0 billion for this interest, and received an additional $2.3 billion for its remaining 30% stake when software giant Microsoft Corp. (Nasdaq symbol MSFT) completed its purchase of Skype in October 2011. Even without Skype’s full contribution, eBay’s earnings jumped 35.3% in 2010, to $1.8 billion, or $1.36 a share.

Set to gain from the mobile revolution

The company operates in a fiercely competitive and rapidly changing industry. That’s why it spent $908.4 million (or 9.9% of its revenue) to improve its websites and systems in 2010. That’s up 13.1% from $803.1 million (or 9.2% of revenue) in 2009.

eBay is also investing heavily in technology that makes it easier for users of smartphones, tablet computers and other mobile devices to access its websites. These investments will also help PayPal securely process payments from mobile devices.

The company’s strong balance sheet will let it keep raising its research spending and buying other companies. eBay’s long-term debt of $1.5 billion is a low 4% of its market cap. As well, it holds cash of $4.0 billion, or $3.82 a share.

Low p/e ratio a big plus

The stock trades at 14.3 times the $2.10 a share that eBay will probably earn in 2011 and 13.3 times the company’s likely 2012 earnings of $2.25 a share. These are low multiples in light of the company’s large share of the fast-growing e-commerce market.

eBay is a buy.

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