eBay Inc (EBAY): Is It Too Much?

Downside for eBay

eBay Inc (NASDAQ:EBAY)’s true growth segment should prove to be its payment segment, but it can only carry the company so far, as it accounts for less than half of revenue. The possibility of increasing state taxes appears to also be an overhang for the company, compared to Amazon, which is actually pushing for such a tax.

Thus, the other big headwind to keep an eye on is the fact that eBay could see weakness in its online-retail segment due to the potential addition of sales tax to its products. Congress is looking to pass legislation to require online retailers to charge sales tax. eBay sent this email to its members to garner support (below is an excerpt)

Congress is considering online sales tax legislation that is wrongheaded and unfair, and I am writing to ask for your help in telling Congress “No!” to new sales taxes and burdens for small businesses…This is a “big retail battle” in which small businesses and consumers have a lot to lose…if Congress passes online sales tax legislation, we believe small businesses with less than 50 employees or less than $10 million in annual out-of-state sales should be exempt from the burden of collecting sales taxes nationwide…that’s what we’re fighting for, and what big companies such as Amazon are fighting against.

The potential marketplace headwinds above fail to include the fact that eBay still lags its top competitor Amazon.com. The other big headwinds that make me question the eBay valuation include the competition in the payments segment.

PayPal still remains the premier choice, but the likes of American Express Company (NYSE:AXP) are breaking into the market. American Express is going the acquisition route, while Mastercard Inc (NYSE:MA) has made a deal with Intel Corporation (NASDAQ:INTC) to include its PayPass technology with Intel’s Identity Protection technology in Ultrabooks.

Don’t be fooled

eBay Inc (NASDAQ:EBAY) appears to have a number of headwinds, while other notable Internet companies could offer investors better value over the interim. This includes the turnaround search company Yahoo!, which has a similar valuation and expected growth, but is managing to generate impressive returns for investors via a 28.5% return on investment, compared to eBay’s 11%. Yahoo! also offers investors substantial less volatility, with a beta of only 0.9, compared to eBay’s 1.4.

The article Is This Internet Retailer too Expensive? originally appeared on Fool.com and is written by Marshall Hargrave.

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