The Digital Skeptic: Celebrate eBay -- the Web Parade's Only Winning Float

NEW YORK ( TheStreet) -- In this week of Independence Day flag waving and parades, let's take a moment to gawk at what is probably the Web's only real prize-winning investment float: eBay ( EBAY).

"There is no denying the sheer power of the mom and pop trader let loose online," Alexander Zacke told me a month or so back. "On the day after 9/11, I remember the rest of the world froze, but eBay still turned over hundreds of millions."

Zacke has a fascinating investor perspective on making money selling stuff on the Web. He's now CEO of Auctionata, a Berlin online art auction house that last week set a Web sales record of $2.4 million for an Egon Schiele watercolor. But back in the day, Zacke cut his Web selling teeth by rising to become a so-called titanium powerSeller dealing art and antiques on eBay.

"I did $10 million a year starting in 2000 for seven years," he said. "What you learn is how much sheer cash is out there on this network."

Starting all the way back in 2008 down through fiscal 2012, both operating and net margins at eBay stayed locked in at around 25%. There is simply none of stench of out-of-control expenses that stink up the financials of Amazon ( AMZN), Google ( GOOG), Facebook ( FB), Netflix ( NFLX) and all the rest of the pure-play Web.

In fact, eBay makes so much money so consistently that Uncle Sam waddles over for his cut. In fiscal 2012, for example, the taxman took a healthy 15% bite out of the $3.1 billion of before-tax income.

All these earnings makes eBay's balance sheet so stable that Father Luca Pacioli, the genius who invented the concept back in 1494, would be proud. Starting again in 2008 up through 2012, total current assets -- you know, cash, receivables and other stuff a business really needs to make money -- grew consistently by 150-some-odd-percent.

And from a cash flow perspective -- no lie -- Bernie Madoff couldn't cook up sexier figures. In 2008, eBay threw off $2.3 billion in cash from operations. By the end of last year, it tossed off $3.8 billion; that's more than 27% of revenue.

Go try to find a Web outfit healthy enough to make those kinds of margins, pay those kinds of taxes and stash that kind of cash.

And let me know how that works out for you.

You get what you pay for
What's eBay's secret? Unlike most every other Web operation, eBay does not play the bait and switch of suppressing the value of the virtual things it touches. Rather, it embraces the process of pricing its products; a truth that was driven home to me as I tried to sell my 2009 Subaru WRX using the service.

As opposed to Cars.com, AutoTrader.com -- or for that matter Amazon, Buy.com and most Web 2.0 sites -- eBay does not seek to hide the value of the Web experiences it sells. Rather, eBay makes it clear that you want something from this company, you pay for it.

Take my car ad. Yes, the basic listing was free, but a 10-day run would cost me more. If I wanted a prominent ad, that was another few bucks. More photos run a few bucks more. I could arrange a down payment through PayPal, its online payments service, for a cut of the take. In all, I paid $41.60 tab for the listing I wanted.

All of this creates a rich picture of the value of the products on eBay, a value its customers respect.

It's "a great place to do research," my fishing buddy Paul told me last week as he showed me his arsenal of tackle priced or bought on eBay. "I may buy elsewhere, but I like to get a good deal. And with eBay I know for sure."

Stupid things loom
Web clouds do roil eBay's otherwise placid business waters. A company spokesman, Ryan Moore, politely but flatly refused to answer my questions about the deep think of why eBay works. He would comment only on a new eBay pricing strategy that puts the company in direct competition with retail giant Amazon for certain services, such as product storage and shipping -- which is almost certain to set off a profit-sucking price war.

And really stupid things still happen here. No joke, a coat of guinea pig armor was sold for $24,000 last week. (But then it wasn't, when that bid was retracted.)

But in the end, for skeptics like us who understand that investing boils down to betting on what survives the Information Age revolution, eBay is a rare roman candle of hope and profit.

That, friends, makes it worthy of its own holiday.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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