eBay Acts Like a Grownup

So now let's see how to value the stock of a mature eBay from here? For the short term at least, they are admitting that days of high-speed growth are over. The company claims it will see profitability from Skype in 2006. But the reality is that it's going to be four to 10 years, at least, before this acquisition is accretive. However, it's possible Skype can be using its currency to continue the land grab in other VoIP stocks by making accretive acquisitions of the smaller players out there. And by using stock in the transaction, they are pretty much telling us they think the stock is overvalued.

I expect eBay, over the next few years to make other expensive acquisitions in order to buy the No. 1 or No. 2 players in other sectors they view as critical to their future success -- regardless of price. The Skype buy signals a critical change in M&A strategy, and I do not think this "lack of accretiveness" will be a one-time event.

I do think the stock has potential for a buy-the-dip comeback over the next week. People are rushing for the door and short-sellers are piling in. I'll note that of the 327 times that eBay has gapped down 1% on the open since it's gone public, it's been up 60% of the time a week later for an average gain, including wins and losses, of 2.84%. Included in this were three successful trades in July.

However, I think that for the long term the stock is going to build a trading range in the $30s and stay there until we either see some of that magical growth again, or until earnings catch up to valuations.

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