Thursday, October 19, 2006

Baby Boomers Remembering When


“Ebay’s profit jumped 10% and revenue soared 31%, but concerns remain about growth in its main U.S. auction marketplace.”

—Wall Street Journal


The single most depressing thing on TV has got to be those Public Television fund raising concerts featuring flabby, ancient, gray-haired singers or vocal groups or bands from the 1950’s or 1960’s or 1970’s playing their one or two or three hit songs to an audience of uniformly Middle-Aged White People sitting politely in their seats while cameras rove the theater for soft-focus close-ups of glassy-eyed individuals, their faces uplifted towards the stage, who are either singing along with the song (which is generally an exact duplication of the original recording) like a five-year-old at a Raffi concert, or mouthing the words silently, as if these were ancient biblical texts about the Sermon on the Mount as opposed to three-minute pop tunes about Big Girls who Don’t Cry or Puff the Magic Dragon.

This sounds harsher than I mean it, but what I see in those shows is not an uplifting mass rejuvenation thanks to the life-lessons of “little Jackie Paper” who “loved that rascal Puff.”

What I see in those shows are people from my demographic who’ve woken up suddenly to find themselves unequivocally old and are wondering where the time went, which is why they’re in a crowd of other 50 year-olds singing along to songs that were popular when they were young and vigorous instead of somewhere else experiencing something a little more current.

In short, they depress the hell out of me.

And not for nothing, but since I’d rather watch Alex Rodriguez stare at a called third strike and end yet another Yankees rally than witness a bunch of Baby Boomers re-experiencing their lost youth in order to replenish the coffers of Public Television, I never stick around long enough to write down the 1-800 Number.

I thought of the hidden message which, to me, lurks behind those televised fund-raisers after reading about eBay’s earnings in today’s Wall Street Journal—how else to account for the use of an active verb like “jump” to describe what was, after all, a measly 10% increase in earnings, than to attribute it to the good memories of what eBay used to be, rather than what it has become?


eBay is, after all, no longer the strapping youth of its glory days, when revenue growth was 100% a year and operating margins were in the mid-30% range. In fact, revenue growth has been cut by two-thirds since then, while operating margins are down one-third.

Furthermore, the “earnings” which “jumped” 10% this quarter were not technically earnings according to Generally Accepted Accounting Principles, in the sense of being revenues less costs.

They were, rather, “adjusted earnings”—earnings adjusted for various items deemed not relevant to the core business and therefore summarily excluded by management—which is a hangover from the Dot-Com Bubble days that many observers thought we had slept off.

In fact, according to my Bloomberg, eBay’s operating income under GAAP actually declined this quarter, from $356 million last year to $339 million this year.

But by using what I call “Earnings Adjusted for Yadda Yadda Yadda,” or “EAFYYY,” eBay was able to report that 10% “jump” lauded by the Journal and by investors bidding up the stock this morning, apparently relieved the news wasn’t worse.

Like the aging Boomers funding Public Television, however, eBay is no longer the revolutionary, anti-establishment entity it used to be, thanks to free and fast-growing alternative sales platforms such as Craig’s List and Google Base, not to mention the rise of paid search by which anybody with something to sell can reach a potential customer for pennies per click, without having to auction if off on eBay.

Still, floating through the mystic chords of memory among Wall Street’s Finest and their clients, there are, no doubt, understandably fond reminiscences of days gone by.


The good news, as I see it, is that the YES Network replays all those Yankees games that Rodriguez cost us practically 24/7.




Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

7 comments:

Tadahito Iguchi said...

The good news, as I see it, is that the YES Network replays all those Yankees games that Rodriguez cost us practically 24/7.

Jeff,

I hope the analysis here is not representative of your analytical skills in general.

Tad Iguchi

bgthej said...

Jeff:
Usually you come up with non-consensus comments, but I think the stocks here, EBAY and YHOO, reflect your negative growth is slowing sentiment. Eventually these businesses had to reach the law of large numbers, but that doesn't mean they have lost their relevance. Last time I checked they were two of the three best brands on the Internet. And while GOOG has done a great job of monetizing search, they really haven't done anything else. But they have funny money to buy YouTube, so they did the rational thing and bought them to give them a call option on the model working. Poor Yahoo! has a real valuation that can be justifed by its cash flows so it is flogged for not paying 1.6 billion times revenue for a business. Give me a break. If I had some balls I'd be buying puts on Google and buying Yahoo! and Ebay.

whydibuy said...

Why pick on the politely seated Puff the magic dragon crowd when you should harp on the grow up already crowd of those geezers the Rolling Stones. A friend saw them and commented that they looked like they just walked out of the geriatric ward of some institution. When people bring up these aging rockers I think back to some of thier fool lyrics of the past as if aging would never happen to them. Lyrics like the Who's my generation "I hope I die before I get old" . I wonder if that sentiment still holds true for Roger now that he's a greybeard. The selfishness and ignorance of that era manifests itself by those kinds of songs. Did they think they attained perpetual youth? Seniors to be held in contempt because aging was a character flaw. I'm proud to say I never catered to that veiw. Even in my youth I had a sense that, yes, one day that I too would become like that old man creeping out of the drugstore and that seniors should be treated with respect.

gvtucker said...

EBAY and YHOO are certainly relevant businesses, but that has nothing to do with whether or not their stocks are good buys.

YHOO has flat earnings and yet trades at a 50 PE. EBAY, as Jeff notes, is growing earnings at about 10% IF you use the non-GAAP numbers from EBAY, and it is trading at more than 30x earnings.

In the meantime, GOOG is still growing earnings at a rate of more than 50% annually, and trades at a PE of 45x.

Funny thing about GOOG and YHOO, their PEs haven't changed at all over the past year, the stock performance is solely reflective of earnings (bad in YHOO's case, good in GOOG's case).

Its_strange said...

Its TV.....The Stone Pony in Asbury Park often has Southside Johnny and the Asbury Jukes...Its a blast with real people having real fun and drinking real beer. Many old buzzards like me have a real blast. Many can move and sing like they are 21 years old....TV is beat. Webcast live shows over the net.

bgthej said...

I'll leave EBAY alone and focus on YHOO. It isn't that their earnings or cash flows have declined, it is that the expectations for their earnings that have come down. GOOG expectations have gone up. Admittedly, GOOG is a great company and I am not predicting its demise, but at some point they are not going to be able to grow as fast or earn as great returns on new invested capital. At some point, maybe not yet, YHOO's expectations bottom out and the company gets to a level of growth that it can hit or beat after Project Panama is enabled. While the P/E on YHOO is high, the real thing that matters is their FCF yield (because book tax rate is way high relative to cash), which is approaching 7% if you back out Yahoo! Japan, Alibaba, and the cash. That's not a bad yield for the premier media company on the Internet. Internet media still has a pretty good shot of growing 20% per year over the next 3 - 5 years and YHOO should grow as fast as the market. If you accept that premise and can pick up Yahoo! at a premium to bond yields then that seems like a better bet than GOOG at 45x earnings with high expectations built in. But I'm a value guy and not willing to pay up for higher growth.

tahoe kid said...

Re: The "bqthej" comment about EBAY and YHOO ("Eventually these businesses had to reach the law of large numbers....") EBAY's TTM revs are $5.5B, YHOO's are $6.2B and GOOG's are $9.3B. Seems to me the "Law of Large Numbers" argument does not hold true. EBAY's problem is they are a fee collector in a world in which the buyer and seller can meet almost as easily outside EBAY as inside through a well executed ad program (often via Google). YHOO seems to be the AOL of the of the 21st century. That's is, it's great if you are starting out and want or need decisions made for you as to what you need for content, etc. Once you figure it out for yourself, you can cast YHOO aside. Another problem with YHOO is the Boad of Directors: Terry Semel-who refuses to live in the Valley and has moved jobs to LA (resulting in departures of some senior YHOO people); Ron Burkle -another LA guy who made his money in the supermarket business (why that qualifies him to be on the YHOO board instead of the Safeway board I don't know); Gary Wilson - COB of Northwest Air and former CFO at Disney and Marriott; plus others. Google's board has: Paul Otellini - Pres/CEO of Intel; Arthur Levinson-COB/CEO Genentech; John Doerr - Kleiner et.al.; John Hennessy - Pres. of Stanford Univ.; Eric Schmidt; Michael Moritz - Sequoia; plus others. My point is the YHOO board is not made up of many forward thinking souls. The Google board on the other hand is made up of some of the MOST forward thinking folks out there.