eBay: Cheap Stock, Troubled Company

The fundamental debate over eBay (EBAY) boils down to this: The stock certainly looks cheap–trading at around eight times Street estimates for 2009 earnings. But the core business still appears to many to be fundamentally broken.

At a meeting with analysts yesterday, eBay laid out an aggressive three-year forecast which places increasing importance on PayPal and anticipated little or no growth in the core Marketplaces business. A number of analysts view the projection skeptically, noting that the company didn’t provide details on the short-term outlook; they also say that the forecast is predicated on an economic recovery in 2010 that not everyone is convinced will develop. Several analysts noted that, at current valuation levels, the stock largely reflects the value of PayPal, Skype (which many think is available for sale at the right price) and the company’s cash position, and effectively puts zero value on the core business. But with a turnaround of that unit still unfolding, few see a need to jump into the stock now.

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