Question
what happens if ebay does this two for one stock split and then it slides further downward?
what would happen to us
to sales
how would it affect us?
Answer
If you believe Meg when she said that they manage the company and not the stock then I don't think it would have any effect.
How far can it possibly slide though when you're gunna make over 4 billion dollars and a billion in profit? The stock just has to come in line with current expectations.
Answer
I think ebay's stock is overvalued, look at the PE Ratio and it is out of whack. While the reason they raise prices and fees is to increase revenue to make themselves look better to investors, they do realize there is a balance they need to keep, so even if the stock took a 20% hit I wouldn't expect to really see any changes in the way they operate from day to day.
Answer
http://money.cnn.com/quote/quote.htm...true&symb=EBAY
Up a couple threads.. look at the closing after 6pm...
Answer
eBay closed yesterday at $103.05. If you owned 100 shares, that's means you have $10,000 (and change) on paper. Overnight it fell further to $91.23, so this morning at opening you'll have $9100 (and change) on paper. Expect it to fall even lower, as holders sell off stock now in anticipation of a lower price leading up to the split, and likely an even lower price after the split.
But for the sake of the illustration, say the 2 for 1 split happened today. All of a sudden you have $18000 (and change) on paper. That's not so awful.
Overvalued? I would agree, so, whether before or after the split, maybe you will want to join those investors who move to cash in some of their eBay holdings while the price is still relatively high, or "before it goes any lower".
That's if you're a stockholder... As a Seller (or a Buyer, for that matter), so what? It's not like any of this has a direct effect on a Seller or Buyer (assuming that the company doesn't disappear in a puff of smoke, taking its hardware and software with it) save to the degree that the current price hike levied on Sellers is almost certainly an effort on eBay's part to become more attractive to investors.
In effect, with this price increase eBay is saying, "See... we have all these addicted Sellers who are willing to absorb this huge increase. You, the investor, are going to make some easy money here!"
As a buyer, if you buy Fixed Price listings, you should anticipate prices going up as Fixed Price Sellers try to cover the increased costs of doing business on eBay, but I wouldn't look for this price rise to happen overnight. Some Sellers will be simply "slow and stupid" while others will sense that they already have paid for the inventory and it's smarter to keep the prices steady (low in comparison to those who raise prices immediately to offset cost).
If you buy Auction listings, the only effect that you're going to see immediately is fewer "quality" offerings, as Auction Sellers will probably hold back items that they believe they could sell as or more profitably in another venue. For a variety of other reasons, that trend has been in place for a couple of years now, and will only continue. In the free market of the auction format, there is no other way that the Seller can "absorb" the increased cost, short of a Buyer's Premium, and I wouldn't look for that to be rolled out anytime soon, at least not by the individual Sellers.
Even if you don't believe Meg when she tells you that she manages a company not a stock, hard as it is to imagine that anyone does, all in all, the stock split, assuming it will happen (and I assume it will) won't have much of an effect, that it hasn't already had, on Sellers or Buyers.
Whether or not you, as an individual, want to stay in the game is entirely up to you.
Answer
If you have 9000 worth of stock, and a stock split occurs, you STILL have 9000 worth of stock.
What happens is:
you have 100 shares of stock at $90 (pre split)
you then have 200 shares of stock at $45 (post split).
The stock is wildly overvalued by any 'conventional' measure. However, that in and of itself is never a reason to short a stock (or to sell how from it if you're long). Once a company flounders 2 consecutive quarters, the bubble is usually popped hard.
(The first quarter there's people still saying "It will come back, it was a fluke." The second quarter the doubters come in earnest).
Answer
so even if the stock took a 20% hit I wouldn't expect to really see any changes in the way they operate from day to day.
Well at 19.1% down, you were pretty close.
Answer
Summerhouse, Thanks for the breakdown. No, I don't hold shares, only as a seller. I would have thought a 20& decline though in the stock would raise an eyebrow or two, to the real investors that may have grown tired of the stock when RFID seems to have so much more promise for future projections.
Answer
Ebay is trading up a bit pre-market, will probably bounce up this morning - unless institutions start dumping. Where it ends up at 4:00 will say a lot about it's direction over the next few weeks.
The drop took out a lot of stop losses for all those people that bought at over $95. But right now there are a lot of investors in the $70-75 range. If it were to drop below that point, the next real support level isn't until $55-60. Even if it does start rising, $95 looks like it'll hit some resistance - and with the news somewhat negative, I doubt it'll get thru it. This is from a chartist perspective....
But for some, it's all a matter of valuations. At a 98 P/E, eBay couldn't make any mistakes, and was being priced entirely on lofty future performance. At the current P/E of 75, it's valuation is still more than twice that of Microsoft. If the market also percieves that some of this may be due to current (Overstock?) or future competition (Google auctions?) - which would indicate even further weakening of growth (and that's all we're talking about here - growth, not actual profits - how fast those profits are increasing is how a company gets a 98 P/E) - then a P/E of 75 may still too high for the market.
Okay, but how does any of this relate to eBay sellers (of which I am one, a powerseller too).
IMHO, eBay raised fees to make up for "opportunity losses" in their eBay stores (as I said on another thread) - and now we know it's because growth rate is below expectations. As a CEO of a public company, nothing is more important than analyst expectations - which drive institutional investing - which affects every single person on the board, who make more money on stock options and sale of stock (over $600 million in the last 2 years) than anything as silly as salaries or bonuses. To say that you are running a company and not a stock, is merely a play on words. A CEO's performance, and the company's performance, are in fact measured by revenues, profits, and expectations - the analyst's predictions and resulting stock price is a lot like the company's report card. Meg's quote is a lot like my kid saying that she's in school to learn, but not to make good grades.
I think my dad summed up eBay's situation when I asked him his opinion about the recent fee increases. He asked "What would happen tomorrow if eBay slashed their fee's in half?". Forgetting for a moment how wily he can be, I said their profits and revenue would plummet. He then asked, "What if Walmart slashed their prices?". I said, revenue would soar, profits might go down, but man-o-man, it would really put the squeeze on K-Mart and Target. And there it is. eBay owns so much of their market - 90% or more - that decreasing fees would only cut their bottom-line. There's no great "excess" of potential sellers or buyers out there for eBay to attract with lower prices. So in order for eBay to stay on track with a 50% (or more) growth rate, they need to dig for more customers (TV ads and China) and continuously raise prices on their huge existing (and dominant) customer base.
If Meg were actually looking longer term than the next few quarterly reports, she would know that she's merely redistributing money with the fee increases from seller's profits - which is what drives all eBay commerce. This pressure will cause more sellers to look at different venues, and those that stay will have to increases prices to buyers (as I did this year), which will also make other venues more attractive to buyers.
It's a slow process, but once started, a difficult one to stop. Higher prices will further decrease sell-thru rates. Less sellers, and less auctions from those sellers, will cut further into eBay's bottomline. Competition, as small as it may seem now, will cause further erosion, and is certainly encouraged with each price increase. If my analysis is correct, eBay's only possible response, if they wish to keep the stock price properly propped - and I think they do, and I think Meg knows she won't remain CEO for very long if she doesn't - will be even more fee increases. This will continue until there is enough lost business and enough competition to justify a "let's bring them back" strategy - more free listing days, and eventually, a lowering of fees.
I'v also heard it suggested that eBay raised fees because of an "increase in customers", but that only makes sense if you are spending more "per customer". If I'm making the same amount of money per customer if I have 1000 customers versus 100 customers, then I don't need to increase prices due to the volume. In fact, as we all know, there is usually greater efficiency with volume. As a seller, I'm more inclined to reduce my prices if I am selling more, since my cost "per transaction" is usually less.
In 2003, eBay revenues were aprox. 2.17 billion dollars, with 1.12 billion in expenses - or about 55% of revenue. So to make $1, eBay had to spend 55 cents. In 2004 revenues were 3.27 billion, with 1.6 billion in expenses - or about 48% of revenue. So last year, eBay only had to spend .48 to make that same $1. Therefore, the basic theories of economy of scale hold true, and the larger eBay becomes, the cheaper it becomes "per customer" - this is usually true for all things - but especially true for "online services", which are highly automated and can duplicate services for very little increase in costs.
So.....while us sellers lose percentages of profit per sale, and buyers pay more per item to make up for it, eBay actually spends less and less per transaction. Therefore, I maintain that the ONLY reason eBay raised fees was to maintain an artificial rate of growth, designed to bolster an overly inflated stock price, whos purpose is to directly benefit it's largest stockholders and board, which is essentially Meg's (and all CEO's or public companies) primary job.
Ebay's only "mistake" last quarter was in not raising it's fees earlier to make up for it's short-fall in revenue growth.
But common sense - and history - tells us that this kind of manipulation will have direct and obvious consequences to eBay's actual business. And what is that business? Simply put, it's to provide a service to SELLERS to sell and distribute merchandise. Reduce our incentives to use the service, and seller's are forced to reduce their reliance on it to sell their products. Each fee increase - at the very least - causes seller's to diversify their online selling venues, which is the ultimate threat to the eBay business model. Competitors - both other auctions sites and direct web stores - get bigger each time they slap sellers with more fees (and less service). Every powerseller I know is selling "elsewhere" now as well as eBay, and I don't see this trend reversing for a long time.
IMHO....
Rich
Answer
I've seen a couple of postings pontificating about the supposed effect of a stock split that only show some people should be banned from giving stock or financial advice. A stock split is mainly psychological, with a rather small real effect: cutting the price say from $100 to $50 (and doubling the shares held by all current owners) serves slightly to stimulate buying of the shares. How? Many traders deal in "round lots" of 100 shares. Sometimes there's a broker penalty for an "odd lot" trade not in multiples of 100. If the stock traded at 100, the round lot would cost $10,000; if split a round lot becomes available for $5000. No difference to the real players like mutual funds but for small investors, quite a few may be able to invest that $5000 but be uneasy, or not have the assets, to put $10,000 into one company. Hence, there's a tendency, given no bad news, etc, for relative buying volume to be stimulated a bit after a split.
Edit: Oh, there's also a thing called a "reverse split," occurs mostly with struggling "penny stocks." Say some speculative and tanking company has dropped to 50c a share; many mutual funds have guidelines forcing them to sell ANY stock that drops under $5, or $4, or $1... it varies... per share. Small investors may glance at prices of 50c or 10c, or whatever, and say, "Bankruptcy coming, extreme risk, not for me" without any further thought... so such a company may do a split say 1:10 so the PRICE changes from 50c to $5 a share, with all share owners then having 1/10 as many shares. No change in company assets at all, a psychological game to try to get more and different people to BUY shares, buying then can push the share price higher with no change in the fundamentals at all. Hence, if you get some sort of "hot tip" on a lower-priced stock one thing to note is whether it may just possibly have been selling at a VERY low price and recently artificially been made to appear more sound with one of these splits.