Is Karsch Capital Management Right On eBay?

In a conference call with investors following the first quarter of 2012, Michael Karsch of Karsch Capital Management expressed a bullish view towards eBay (EBAY), the $52 billion market cap online auction manager which also owns a number of subsidiaries including ticket site StubHub and online payments manager Paypal. Karsch had spent much of the first quarter increasing his fund’s stake in EBAY, and owned over 1 million shares at the end of March. In his commentary Karsch discussed the enormous potential for EBAY to use Paypal to bring “their success in online payments into the physical retail world…Home Depot, for example, now allows customers to use their PayPal cards at the point of purchase and thousands of small vendors, who are probably already eBay merchants, are now using PayPal in their smaller stores. I think you are going to see that grow a lot. To give you a sense of the opportunity set, a 2% penetration in the physical retail world for PayPal would be as much payment volume as all of PayPal today.” Up about 28% this year- and up 8% since the end of March as the S&P has lagged- getting into EBAY when Karsch did would have been a great decision. But does his advice still hold for investors?

Michael Karsch

Karsch is not the only hedge fund manager with a position in EBAY. Eton Park Capital, managed by Eric Mindich- who was the youngest partner in the history of Goldman Sachs while he was with the firm- owned 8.3 million shares (see Eton Park’s stock picks). The fund had increased its position over the course of 2011 before slightly reducing its exposure in 2012. However, it is still nearly 4% of Eton Park’s 13F portfolio. Steadfast Capital, a multi-billion hedge fund managed by Robert Pitts, was bullish enough on EBAY to buy 3.5 million shares of the company in the first three months of the year, a new position for the fund (see what else Steadfast Capital bought earlier this year).

EBAY’s first quarter results were excellent. The company increased its revenue by 29% over the first quarter of 2011, and increased its net income by 20%. EBAY experienced growth in both its major segments, Marketplaces and Payments, though its increase in operating income in the Payments segment- which includes the Paypal business- was particularly strong. If this fact is because of the trend that Karsch identified- increased penetration by Paypal in the retail payments market- then growth in Payments could begin to drive the business going forward and push the stock higher.

EBAY’s closest peer is Amazon (AMZN), which is one of the 10 most popular services stocks among hedge funds (see the entire list here). EBAY’s trailing P/E of 16 is a fairly reasonable. Though the company is not expected by analysts to grow their earnings this year, managers such as Karsch apparently feel differently and embracing higher earnings expectations would make the company look even cheaper. Amazon, meanwhile, has a P/E of over ten times this figure at 180 and even the growth expected from analysts only brings its forward P/E down to 85. Considering each company’s PEG ratio, which may account for Amazon’s longer-term growth plans, EBAY’s 1.26 still easily comes in as more appropriate for a value investment than AMZN’s 5.36. EBAY can also be compared to Google (GOOG), which has a slightly higher P/E of 17 but has been growing its earnings more rapidly, and is expected to continue this high growth in the near future. Google’s forward P/E is only about 12 and so it might make a better investment, unless investors believe that the market is not appropriately rewarding EBAY’s growth prospects.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!