idea #25 ebay? yes, ebay.

Something about the idea of owning eBay stock is unattractive.  Online auctions are silly.  Will the fad will wear off?  Will another competitor kill them?    Ebay surprised analysts a little bit with their 4th quarter and analysts have moved their earning's estimates up.   What is the right price to pay for a debtfree, "tollbooth" style internet business that offers a great value proposition to clients in any economic climate?   Merrill calls it "defensive e-commerce," yet they rate it a "hold" with a $28 price target.   The company is bringing in over $2 per share in cash, and it's sitting on nearly $4 per share in cash, with no debt.  So the big questions are: (1) Is their service here to stay? (2) will they pursue another money losing investment like SKYPE?    Ebay will start showing up on Magic Formula style screens with their almost 20% ROA and 13x p/e ratio (the sale of skype hit their earnings this year).  Plus, Magic Formula doesn't care about margins or financial leverage, 2 areas that eBay would compare favorably with others.  Here's a  big name,  high margin, unleveraged, stable cash cow trading at under 20x sustainable earnings.  Those qualities are unusual.  Someone on VIC wrote up eBay when it was at it's bottom of $12ish back in December, 2008.  They argue it has a nice moat.  You don't find stocks with "moats" and have fat profit margins that trade at 10x earnings and have no debt (as it did, it has since doubled). Will Google start online auctions?  Can eBay's empire be dismantled?  What is their 25% share of Craigslist worth?  At the rate eBay is bringing in the cash, they can buyback the company every 9 years... I'd buy a quality business with a 9 year payback if I could be sure that management will reinvest wisely.  I think they're being fairly punished for their Skype sale.  Tech investors don't care about valuation, they're too worried about topline growth.  Value investors aren't used to seeing value in headline stealing technology names that used to be high flyers.