Back in 2001 or so, I came to a realization about stocks. If you buy and sell them often, you had better do really well at it, because with all the short-term capital gains and commissions you pay, and the pain in the ass that your tax return becomes, the appeal of it quickly wore off. I was making money, but not enough really to make it worth while. And so I became a believer in the buy-and-hold strategy. But I wanted to have my own spin on my portfolio. I wanted to own stocks that my generation would look back on 25 years from now, and say, that those stocks were no brainers. The way people look back on GE or AT&T (before the breakup) and say, if you had invested $10,000 back when you would now be a millionaire.
So I came up with a “generational investor” theory. The main idea behind the investment strategy was investing in solid companies, that the current younger generation had been raised on, and would have brand loyalty towards once they entered the workforce and became consumers of their own. Obviously the companies needed to be successful as well, and have growth models, etc.
But the two purchases that I made that most closely matched this philosophy, have proven to be duds so far, and one I don’t even own anymore. That’s the one I want to talk about today, because I feel that my strategy left out a very important characteristic of a company, and that is management. The company is eBay.
Even with its lackluster past few years, if you got in on eBay’s IPO about 10 years ago, you are sitting pretty. Your investment would be worth 15 times what it was then, even with it having come down to almost have of its all time high back in December 2004. The problem I see with eBay is that it no longer seems to have a clear vision, and a clear path to growth.
eBay has made a few larger acquisitions since it went public. The most important was PayPal. If you ever used eBay in its early years, you probably remember how difficult it was to complete your transaction. There was a high level of trust involved, and a delay in receiving your purchase. PayPal brought an end to that, making it easy for buyers and sellers to make and receive electronic payments, and speed up the process of completing a transaction. Since its purchase, eBay has done a fantastic job integrating PayPal directly into their web site and making payments and invoicing quick and easy.
But not all of eBay’s acquisitions have worked out as well as PayPal. Back in September, 2005, eBay agreed to pay $2.6 BILLION dollars for Skype. Skype is an online service that allows people to video/audio conference for free. They make their money on calls placed from computers to cell phones or land lines, convincing customers with their low rates. But Skype wasn’t profitable, and eBay has not integrated any of Skype’s services into its core auction business. So the 2.6 billion dollar question remains, Why did they buy this company again? The 3 year anniversary of the purchase is coming up, and investors have to wonder what management was thinking when they pulled the trigger on this one.
Then there is eBay’s investment in Craigslist. In August, 2004, eBay purchased 28.4% of the privately-held craigslist. Craigslist is the free classified ad service that caters to cities and regions around the country world. Craigslist makes its money charging a small fee for placing job ads in major cities. All other ads, and in all other locations are free. eBay’s investment is best viewed as an “if you can’t beat them, join them” strategy. Many thought that Craigslist would be the end of eBay, since people began listing their for sale items by the thousand for free, and cutting eBay out of the equation. Now there is a lawsuit between eBay and Craigslist. Trouble in paradise it would seem.
Well at least eBay has its auctions….
Which brings us to eBay’s latest earnings report. eBay’s auction business isn’t growing. A quick search on the consumerist.com gives an indication of why. Both buyers and sellers are having TERRIBLE experiences when they use the site. As a seller, you might follow all the rules, wait your seven days for the auction to end, and then once it does, eBay might cancel it, leaving you with no buyer, no option to re-list the auction, oh and it will be 7-10 days before they refund your fees. As a buyer, you may send off your payment only to discover that there is no product heading your way. eBay obviously takes such fraud very seriously, but the sad part is the innocent people suffer. To make matters worse, eBay has terrible customer service. You have to navigate through a maze of web pages to fill out a form, and wait 24-48 hours for an email response. All responses from there are expected within 24 hours. There is no phone support. There is no escalation path to customer support management. There is just suffering.
At the time of purchase I envisioned an eBay that would be the preferred method for people to sell their goods in the future. It would be second nature for people to list their auctions, or to make purchases. Now, I fear that eBay may have seen its golden years come and go. Personally, I have sold both new and used goods throughout the years on eBay. During college, a friend and I sold posters that we printed on eBay. Afterwards, I sold records that my label put out on eBay in addition to our web store. But now I have been soured. My most recent attempt to sell my laptop on eBay ended as I described above, and like many other potential sellers. In the end, I found a local buyer on Craigslist.
Unless eBay’s management team can show some … Continue Reading