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Ebay Financial Analysis Essay

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EBAY, INC. BUAD 341. 00, MWF 11:00A CARMEN CANDELARIA May 3, 2013 Table of Contents Introduction1 Theme1 Product Line of the Company3 Industry History and Analysis3 Major Competitors4 NAICS Numbers4 Relative Sales4 Relative Returns5 Product Life Cycle5 Stock Performance6 Financial Analysis7 Ratio Analysis8 Pro forma8 Assumptions8 Growth Rate of Sales9 Asset Acquisitions9 Financing Needs9 Conclusion9 Appendices10 Income Statement10 Sources14 Uses15 Firm Ratios16 Industry Ratios17 Graphs of Ratios18 Graphs of Ratios19 Bibliography20 Introduction

This paper will provide a historical analysis for EBay, who operates the world’s largest online trading community. The analysis will show EBay’s main competitors and assuming the historical trend persists, I will be able to generate a three year forecast that will explain the company’s ever rising financial situation and steady outlook as a leader of its industry. Theme EBay operates the world’s largest online trading community. As of the end of 2012, their marketplaces’ segment had over 110 million users. EBay is concentrating on making their user base even larger. Bay has been able to correctly predict the increases in the current and future markets for their Marketplaces segments and payments business (PayPal) showing substantial growth for their online ecommerce industry. Although EBay bottomed in 2009, reflecting the economic difficulties, notable retooling of and investment in the core marketplaces businesses across the world and less favorable revenue mix. It is noted that a negative impact from its acquisition in 2012 and definitely foresee annual improvements in 2013 through 2015. In the past several years, eBay has shown increases in all areas of their business. [1]

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History of the Firm In 1995 on Labor Day, Pierre Omidyar, the founder of EBay wrote the code for what he called an “experiment”. He questioned, “What would happen if the world could have equal access to a single global marketplace. [2] In his experiment, Pierre Omidyar, tested the new auction website with a post, and waited. He was surprised to have sold a broken laser pointer. This was the beginning of a radical transformation in e-commerce. EBay has continued to escalate their business domestically and internationally during the past years. The company has become the world’s largest operating online trading community.

The company’s stated goal is to become the world’s most efficient and abundant marketplace by expanding its community of users, delivering value to buyers and sellers, creating a global marketplace, and providing faster, easier and safer trading experience. The company has increasingly employed acquisitions to fulfill the aforementioned goal, focusing on international expansion and offering more choices and services to its buyers and sellers. EBay’s innovative way of doing business has brought the company the success it has today. EBay will continue to employ its financial resources to seize upon sizable opportunities in international arkets as well as domestic markets. [3] Product Line of the Company EBay pride themselves as being one of the world’s most popular e-commerce destinations, which bears its name, as well as PayPal (an online payments business) and other online interests. EBay is a remarkably efficient market created by connecting individuals who wouldn’t otherwise be connected. It was substantially the world’s first example of online social networking. EBay’s presence in more than 39 markets including partnerships and investments with more than 110 million users worldwide, trading more than $1,900 worth of goods per second. 4] Industry History and Analysis The industry for EBay has done well throughout the past several years.

The industry is projected to continue growing since the online revolution is continuing to make innovative ways for consumers to be able to do everything online. EBay has paved the wave in this industry and being in a billion dollar industry making things happen to benefit consumers in many ways. [5] Major Competitors There are many major competitors for EBay. Of the many companies that are in the same industry which are at the top of the Hoovers in depth list is Amazon, Google, Overstock. com, Walmart. om, HSN and the list goes on. The industry that these companies are in is a multibillion dollar industry. All these companies know that the consumer is their main concern. The consumer will always have a these companies doing all they can so that they stay on top. [6] NAICS Numbers The two primary NAICS numbers I found for EBay are 454111 – Electronic Shopping and 454112 – Electronic Auctions. [7] Relative Sales The chart on the right shows the relative sales for EBAY and its competitors. These companies have diverse products that are sold on line to consumers and industries all over the world.

This is not the best way to measure the success of these companies because it does not account for the size of the company into account. The best way to measure the performance of these companies would be through their relative return on equity. Relative Returns The chart to the left shows the relative return on equity for EBAY and its competitors. It clearly indicates that EBAY is not the leader in the industry if efficient use of equity is used as the measure to find out how well the companies are doing. EBAY is a substantially mature company and would have a difficult time improving their return on equity.

EBAY must continue to take advantage of sales and growth opportunities, and must continue to grow with the industry as well as increasing their sales volumes in order to remain competitive in the market. It will be imperative for EBAY to seek business outside their current market to stay as competitive as their counterparts. [8] Product Life Cycle The product of life cycle for EBAY is at its mature stage as are its competitors. EBAY is using their experience with ecommerce to continue to build the best peer to peer experience.

EBAY’s competitor AMAZON is the leader in the industry at this time but EBAY has been able to hold their own in the industry through their three core business units: Marketplaces, PayPal and GSI Commerce. EBAY has continued to strengthen their capabilities in 2012 with acquisitions that enhance our ability to innovate. It is believed that the company is well positioned to enable the future of commerce. Although EBAY is at a mature product stage, they continue to build on the ideas and innovations that have brought them success and look forward to continue focusing on making their present core services even better for consumers. 9] Stock Performance The price of EBAY stock has somewhat modeled the Dow Jones Industrial Average for the past five years. [10] EBay was somewhat affected by the recession as were so many mature firms in the market during 2008. As the graph on the left indicates, both eBay and DJIA had corresponding ups and downs in the following years as indicated by the graph beginning in 2009 and the years that followed to 2012. Financial Analysis This is the heart of the paper. This section should explain what is going on in the company from a financial viewpoint, in terms of the theme defined in the first section.

This section should be two or more pages. Ratio Analysis This section will provide more in-depth explanations of the theme in terms of financial ratios. Ratios necessary to support the analysis will be imported into the text, making it easier for the reader to see the long term trends of the company, the industry, and the results of your forecast. The graphs will cover 8 years, five years of historical firm and industry ratios, and three years of the firm’s ratios based on the forecasting. Pro forma This section will cover how you did your forecasting.

Generally you will use percent of sales to do your forecasting but may make some additional changes dependent on your theme. For example, you may want to change the debt ratio for the firm in the near future, and hence use little debt but more equity to finance new assets. You should explain why and how you are making changes in this section. Put the pro formas in the appendices on the same spreadsheet as the historical data. Discuss your model and assumptions in the text. Be sure to balance the balance sheet and explain how you financed the additional financing necessary.

Adjust the interest expense if you use debt. Assumptions Provide details on how you made changes in the company to reach the goals stated in the theme. Provide assumptions on forecasting. Growth Rate of Sales Calculate for all years the internal, sustainable, industry and company growth rates. Graph these rates. Explain why you picked a particular growth rate (based on past growth or on the recommendations of analysts or the projections of the management). Provide estimates (using formulas from Chapter 4 of your textbook) on the potential growth rate using internal funds and under sustainable growth.

Relate these growth rates to actual growth rate and financing choices of the firm. Asset Acquisitions What amount of assets will the company have to buy to remain competitive? Financing Needs What amount of debt and stock must the firm issue to meet objectives and the theme. Import a graph of the relative amounts of debt and stock used each year for the eight years. Relate to the growth section. Conclusion Reiterate the theme and explain how the firm is going to fulfill the plan inherent in the theme. This should be at least three paragraphs but no more than one page. Appendices

Income Statement [pic] Balance Sheet [pic] Sources [pic] Uses [pic] Sources [pic] Uses [pic] Firm Ratios [pic] Industry Ratios [pic] Graphs of Ratios Graphs of Ratios [pic] Bibliography 1. Hoover’s. com. (2001, 1 January). Retrieved February 15, 2013, from Hoovers: http://www. lexisnexis. com. navigator-millersville. passhe. edu/hottopics/lnacademic/? shr=t;sfi=AC02NBCmpDosSrch 2. Standard and Poors Industry. (2006, August 24). Retrieved March 10, 2013, from S;P. com: http://finance. yahoo. com/q/hp? s=EBAY;a=11;b=31;c=2008;d=11;e=31;f=2012;g=m 3. EBay Historical Prices. 2008, December 31). Retrieved April 5, 2013, from Yahoo Finance: https://www. google. com/finance? q=NASDAQ%3AEBAY;ei=zdSFUdjHJKbSlgPZZg 4. US Census Bureau. (2010, September 13). Retrieved March 11, 2013, from census. gove: http://www. census. gov/cgi-bin/sssd/naics/naicsrch 5. Bureau of Economic Analysis. (2012, September 15). Retrieved March 4, 2013, from BEA. gov: http://www. bea. gov/azindex/index. htm 6. Dow Jones Historical Prices. (2012, January 12). Retrieved March 5, 2013, from Yahoo Finance: https://www. google. com/finance? cid=983582 7. Edgar. (2012, September 19).

Retrieved March 5, 2013, from US Securities and Exhange Commission: http://www. sec. gov/cgi-bin/browse-edgar? company=eBay;match=;CIK=;filenum=;State=;Country=;SIC=;owner=exclude;Find=Find+Companies;action=getcompany 8. Net Advantage. (2012, December 31). Retrieved March 1, 2013, from S;PCapitalIQ. com: http://www. netadvantage. standardpoor. com. navigator-millersville. passhe. edu/NASApp/NetAdvantage/simpleSearchRun. do? ControlName=CompaniesSimpleSearch 9. YCharts. (2012, December 31). Retrieved March 24, 2013, from ycharts. com: http://ycharts. com/companies/EBAY 10.

EBay Inc. (2013, January 12). Retrieved 23 April, 2013, from eBayinc. com: http://investor. eBayinc. com/events. cfm 11. Financial Information for EBAY. (2013, January 1). Retrieved May 5, 2013, from Reuters. com: http://www. reuters. com/finance/global-market-data 12. Donahoe, J. (2012, December 31). eBayinc. com. Retrieved May 04, 2013, from eBay. com: http://files. shareholder. com/downloads/eBay/2460071406x0x651324/1743d367-5b70-42c5-b1c3-57dfc4981443/eBay_ShareholderLetter2012. pdf 13. Leo, T. (1997, March 15). Almanac of Business and Industrial financial ratios.

Almanac of Business and Industrial financial ratios, p. 236. 14. Stepehen A. Ross, R. W. (2010). Fundamental of Corporate Finance. In R. W. Stepehen A. Ross, ; Ninth (Ed. ), Fundamental of Corporate Finance (pp. 50-65). New York, NY, US: McGraw Hill Irwin. ———————– [1] Information found at Standard and Poor Industry. (2006, August 24). Retrieved March 10, 2013, from S&P. com: http://finance. yahoo. com/q/hp? s=EBAY&a=11&b=31&c=2008&d=11&e=31&f=2012&g=m [2] Standard and Poors Industry. (2006, August 24). Retrieved March 10, 2013, from S&P. com: http://finance. ahoo. com/q/hp? s=EBAY&a=11&b=31&c=2008&d=11&e=31&f=2012&g=m [3] Hoover’s. com. (2001, 1 January). Retrieved February 15, 2013, from Hoovers: http://www. lexisnexis. com. navigator millersville. passhe. edu/hottopics/lnacademic/? shr=t&sfi=AC02NBCmpDosSrch [4] Net Advantage. (2012, December 31). Retrieved March 1, 2013, from S&PCapitalIQ. com: http://www. netadvantage. standardpoor. com. navigator-millersville. passhe. edu/NASApp/NetAdvantage/simpleSearchRun. do? ControlName=CompaniesSimpleSearch [5] Standard and Poors Industry. (2006, August 24).

Retrieved March 10, 2013, from S;P. com: http://finance. yahoo. com/q/hp? s=EBAY;a=11;b=31;c=2008;d=11;e=31;f=2012;g=m [6] Bureau of Economic Analysis. (2012, September 15). Retrieved March 4, 2013, from BEA. gov: http://www. bea. gov/azindex/index. htm. [7] NAICS numbers found at Hoover’s. com. (2001, 1 January). Retrieved February 15, 2013, from Hoovers: http://www. lexisnexis. com. navigator-millersville. passhe. edu/hottopics/lnacademic/? shr=t&sfi=AC02NBCmpDosSrch [8] Relative on Equity information found at http://investor. ebayinc. com/events. cfm