Jack & Jill: Wal-Mart and eBay, Part 2.

In part 1 Jill and I discussed Wal-Mart Stores Inc (NYSE: WMT). In part 2 we discuss eBay Inc (NASDAQ: EBAY)and if it’s a buyer or sellers world.

Jill’s eBay Analysis:

Selling on eBay is a completely different experience compared to the casino like experience of a buyer. For starters anything and everything can be found on EBay. As a buyer it is so easy. Type in a size and or product and taadaa a thousand plus options with a starting bid of 99 cents pop up. Or there is the instant gratification option of buy it now, which very often has the item listed at a much lower price than the current auction price…. nice. Of course the ‘Caveat Emptor’ motto strictly applies, as well as the known catch phrase, “sometimes if it is too good to be true it usually is”.

Most of the experienced eBayers out there have adopted the ever popular ‘Sniper’ bidder moves: posting a bid in the last final seconds of an auction, thus squashing the unsuspecting first bidder who up until that point did not have any competition. As a reader commented on part 1, there are a number of websites that help you snipe and even a few that allow you to find bargains at the expense of the spelling challenged seller. These tactics, although neat tricks for a buyer, are obviously not very profitable for the seller. And herein lays the problem.

It’s not until after the final seconds of an auction, when the seller reviews the transaction results that the depressing reality sets in. After paying seller fees, a percentage of the sale to eBay (depending on the final selling price), and a percentage to PayPal, the seller could very well be in the red. Throw in gas to drive the package to the post office, buying the tape to secure the package, and possibly spending even more for tracking and you’re starting to see why sellers are fleeing. Plus, don’t forget all the time spent writing up a description, posting the pictures, listing the item, and all the time answering the questions that prospective bidders have clogged up your e-mail with.

And what’s it all for? Some piddley positive feedback, wherein if a buyer decides not to pay for an item it takes weeks for the seller to go through all of the proper channels to again be able to re-list an item. And don’t think for one second as a seller you are able to leave negative feedback about the experience. The ones that profit most in this auction world are eBay/PayPal, the post office, and sometimes the buyer.

The bottom line, as a consumer eBay is a great place to find deals but with some reservation. As a seller, unless you are getting your merchandise for free it does not seem to be a place where one can easily turn a profit.

Jack’s eBay Analysis:

The eBay marketplace is the perfect example of why the efficient market theory is a bunch of baloney. If everyone is rational then why on earth would you ever sell anything on eBay? I saw my wife sell a coat for 25% more than she paid for it and lose money after all the eBay and PayPal fees. If this were the stock market the SEC would put you in jail for such rips!

The point is no one would, and this is the problem with the eBay business model. They continue to try to increase revenues by charging the sellers more, effectively driving sellers to other alternatives such as Craig’s List. As sellers leave, the only natural course will be for sales to fall. Maybe this explains the reason the stock has been in a downward trend since December 2004.

Much like the past 5 years, I would expect eBay to continue underperforming the general markets. Since its 2004 high, eBay has tended to make a new low, rally 50% of the movement from the previous high, and then proceed on another downward trend. This occurred in 2005 and again in 06-07. During the 08-09 down turn, eBay fell from about $40 to $10. Adding 50% of this range to the low of $10 would result in an expected high of around $25 for this rally. Curiously enough, eBay hit a high of $25.80 on October 21st, gapped down a dollar the following day after announcing earnings, and has traded in a narrow range ever since.

Typically if there are tons of buyers but no sellers a stock will go through the roof. Unfortunately for eBay the same is not true in the online auction world. Sellers have expressed their displeasure since eBay began raising fees back in 2004 and the stock price seems to have followed. Keep your eyes open for an opportunity to short should it break through its support.