Saturday, December 11, 2004


Readers continue to get excited about SIRI but not about EBAY; WHY??

It seems to all boil down to price. It is easy to get excited about a $7 stock but hard to get excited about a $114 stock. It does not seem to matter that the $7 company has issued more than 1,400,000,000 shares! While it is true that EBAY has issued about 700,000,000 shares, this number is half. The price of $114 times the number of shares makes EBAY 10 times the size of SIRI so maybe SIRI is not so over priced after all; not!

EBAY has revenues of 2 Billion Dollars per year, has a gross margin of 79% and a return on equity of 15.5%. SIRI has revenues of 12 Million Dollars per year, a gross margin of negative 256% and a negative ROE of 48%.

The revenues per share are: EBAY $2.85; SIRI $.01! Yes, EBAY is a very expensive stock but SIRI is about 285 times as expensive.

I have made the case correctly that SIRI and XMSR have huge growth potential. My family continues to own shares in both stocks. We do not consider either a core position but a way to have some fun with a few dollars. Yes, we are betting on the come! We recently sold about 40% of our SIRI shares at average profits of better than $5 per share. We have 400% gains in XMSR and have not sold any.

On the other hand, we purchased EBAY at least 5 times over several years. Our gains in the first shares bought are about 1000%. We added to our holdings until the appreciation made this stock a significant part of our holdings. EBAY also has huge growth potential. Unlike SIRI, it already has large revenues and large profits.

EBAY has a virtual lock on the auction market. Overstock and others compete at the margins. But, perhaps the biggest reason to buy EBAY is because it owns PayPal. About 70% of all EBAY transactions are settled using PayPal. PayPal makes about 2.5% off each transaction! And, PayPal is just getting started. Their deal with Apple's I-Tune service means that consumers who down-load music can pay with PayPal. The PayPal system is such that if you sell something on EBAY, it makes sense to collect through PayPal and then it makes sense to leave the money in the account until you buy something. As an old man, I only do a few transactions through PayPal but if I want to send money quickly, it cost me nothing to immediately email money.

Young folks are growing up knowing that the easy and quick way to pay is through PayPal. No one else has been able to gain a strong foothold in this market. EBAY is leveraging off its auction market to build a financial empire. PayPal is the fastest growing international financial company. PayPal is a leader in the car lending market. Many folks know that GM makes more money off the financing of cars than off the sale of the cars. EBAY motors sales a lot of cars, has no inventory costs and finances a lot of the purchases at very large profit margins.

Buy and hold EBAY with confidence for the long-term. Buy stocks like SIRI with a few dollars just for the fun of watching the yo-yo go.