(EBAY) Archives

Data Tells the Whole Story

Behavioral trends have a sizable say in which tech companies will outperform the next and a recent report from SimilarWeb offers insight into how much users navigate around the monstrosity known as the internet.

The optimal way to comprehend the trends are from a top-down method by absorbing the divergence between desktop traffic and mobile traffic.

It’s no secret that the last decade delivered consumers a massive leap in mobile phone performance in which tech companies were able to neatly package applications that acted as monetization platforms by offering software and services to the end-user.

Thus, it probably won’t shock you to find out that desktop traffic is down 3.3% since 2017 as users have migrated towards mobile and the trend has only been exaggerated by the younger generations as some have become entirely mobile-only users.

All told, the 30.6% expansion in mobile traffic has penalized tech firms who have neglected mobile-first strategies and one example would be Facebook (FB), who even though has a failing flagship product in Facebook.com, are compensated by Instagram, who is showing wild growth numbers.

The fact that mobile screens are smaller than desktop screens means that users are staying on web pages not as long as they used to – precisely 49 seconds to be exact.

This trend means that content generators are heavily incentivized to frontload content and scrunch it up at the top of the page. This also means that sellers who don’t populate on Google’s first page of search results are practically invisible.

The high stakes of internet commerce are not for the faint of heart and numerous companies have complained about algorithm changes toppling their algorithm-sensitive businesses.

Even using a brute force analysis and investing in companies that are in the top 15 of internet traffic, then the companies that scream undervalued are Twitter (TWTR) and eBay (EBAY).

Twitter is a company I have liked for quite a while and is definitely a buy on the dip candidate.

The asset is the 7^th most visited property on the internet behind the likes of Instagram, Google, Baidu, Wikipedia, Amazon, and Facebook.

This position puts them just ahead of Pornhub.com, Netflix, and Yahoo.

And if you take one step back and analyze traffic from the top 100 sites, traffic is up 8% since 2018 and 11.8% since 2017 averaging 223 billion visits per month.

Rounding out the top 15 is eBay who I believe is undervalued along with Twitter - these two are legitimate buy and holds.

Ebay was the recipient of poor management for many years and they are now addressing these sore points.

Certain content is suitable for mobile such as adult sites, gambling sites, food & drink, pets & animals, health, community & society, sports, and lifestyle.

And just over the last year or two, other categories are gaining traction in mobile that once was dominated by desktop such as news and media, vehicle sites, travel, reference, finance, and others.

Many consumers are becoming more comfortable at doing more on mobile and spending more to the point where people are making large purchases on their iPhones.

The biggest loser by far was news - they are losing traffic in droves.

Traffic at the top 100 media publications was down 5.3% year-over-year from 2018 to 2019, a loss of 4 billion visits, and down by 7% since 2017.

Personally, I believe the state of the digital news industry is in shambles, and Twitter has moved into this space becoming the de facto news source while pushing the relevancy of news sites down the rankings.

Facebook and Twitter are essentially undercutting the news by forcing news companies to insert them between the reader and the news company because they have strategized a position so close to the user’s fingertips.

The negative sentiment in news is broad based on popular news, entertainment news and local news all showing decreases of more than 25%.

Finance and women’s interest news categories are the only ones showing positive traffic growth.

The state of internet traffic growth supports my underlying thesis of the big getting bigger and the subsequent network effect stimulating further synergies that drop straight down to the bottom line.

The top 10 biggest sites racked up a total of 167.5 billion monthly visits in 2019, up 10.7% over 2018 and the remaining 90 largest sites out of the top 100 only increased 2.3%.

This has set the stage for just five gargantuan tech firms to become worth more than $5 trillion or 15.7% of the S&P 500’s market value and 19.7% of the total U.S. stock market’s value.

Now we have real data backing up my iron-clad thesis and these cornerstone beliefs underpins my trading philosophy.

Many of the biggest wield a two-headed monster like Google who has Google.com and YouTube video streaming and Facebook, who have Facebook.com and Instagram.

It doesn’t matter that Facebook has lost 8.6% of traffic over the past year because Instagram compensates for Facebook being a poor product.

And if you are searching for another Facebook growth driver under their umbrella of assets then let’s pinpoint chat app WhatsApp who experienced 74% year-over-year traffic.

Beside the news sites, other outsized losers were Yahoo’s web traffic shrinking by 33.6% and Tumblr, which banned adult sites in 2018, leading to a 33% loss in traffic.

If I can sum up the data, buy the shares of companies who are in the top 15 of internet traffic and be on the lookout for any dip in eBay or Twitter because they are relatively undervalued.

November 19, 2019

Diary, Newsletter, Summary

Global Market Comments
November 19, 2019
Fiat Lux

Featured Trade:

(BLACK FRIDAY DISCOUNT OFFER FOR THE MAD HEDGE TECHNOLOGY LETTER),
(ADBE), (EBAY), (PANW)

Black Friday Discount Offer for the Mad Hedge Technology Letter

Diary, Newsletter

The Mad Hedge Technology Letter has been on an absolute tear lately.

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We nailed the 27.3% move in the multimedia software company, Adobe (ADBE). We killed the 23.28% pop in e-commerce leader eBay (EBAY). And we hit a total home run with a positively ballistic 30.42% gain in cybersecurity giant Palo Alto Networks (PANW).

And here’s the method to our madness. While no one was looking, the stock market has made a dramatic shift from buying in large-cap tech techs to smaller cap ones. In order words, we’ve moved from the FANGs to the mini FANG’s, and WE CAUGHT ALL OF IT!

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CEO & Publisher
The Mad Hedge Technology Letter

August 2, 2019

Tech Letter

Mad Hedge Technology Letter
August 2, 2019
Fiat Lux

Featured Trade:

(THE GREAT LATIN AMERICAN INTERNET PLAY),
(MELI), (PYPL), (AMZN), (EBAY)

The Great Latin American Internet Play

Tech Letter

How do you get exposure to the e-commerce story in Latin America?

The best way to do that is to dive into Mercado Libre (MELI), meaning “free market” in Spanish, an Argentine company incorporated in the United States that operates online marketplaces dedicated to e-commerce and online auctions, including mercadolibre.com.

Mercado Libre was established as an Argentine company in 1999 and Founder & CEO Marcos Galperin, while attending Stanford University, acquired funding from HM Capital Partners co-founder John Muse to start his brainchild.

Mercado Libre received additional funding from JPMorgan Partners, Flatiron Partners, Goldman Sachs, GE Capital, and Banco Santander Central Hispano.

The company has used M&A along with organic growth to drive the company.

Relevant examples are of eBay (EBAY) buying a 19.5% stake in the company and then selling its stake in Mercado Libre in 2016, but the companies continue to expand eBay sellers into Latin America.

The cooperation remains strong with eBay opening its first branded store on the Mercado Libre marketplace from Chile in March 2017.

Mercado Libre has acquired iBazar Como, the Brazilian subsidiary of eBay's earlier acquisition, iBazar S.A.

The success culminated with becoming the first Latin American technology company to be listed on the NASDAQ, under the ticker symbol MELI.

The firm offers investors a way to invest in one of the fastest-growing e-commerce markets in the world.

The company has 280 million registered users out of 644 million people who live in Latin America.

The stock has soared 543% in the last five years making the firm one of the fastest growing e-commerce companies in the world by many metrics.

The main drag is that the valuation looks frothy at these price levels.

Mobile payments have mushroomed naturally because of its title, the "eBay of Latin America."

They can also claim to be the PayPal of the region, thanks to robust growth happening in the MercadoPago digital payments business.

In the first quarter, total payment volume rose 82.5% year-over-year.

Off-marketplace payment volume is up 194% – accelerating each and every quarter.

Off-marketplace payments now comprise 45% of the company's total payment volume, and management sees high penetration trends happening in certain areas.

PayPal (PYPL) have become huge supporters of MercadoLibre with an investment of $750 million into MercadoPago.

The deal will join the firms together to work on the shared vision to digitize the economy, especially for the underbanked, in Latin America.

It's a stamp of approval of Mercado's brand recognition in the region that PayPal chose to invest in the company instead of competing.

How fast is the addressable market growing?

Investors have been seduced by the company's impressive growth in payments, but the core marketplace business is still doing backflips.

Gross merchandise volume (GMV) expanded 27% year-over-year in the first quarter, driven by 70% growth in Mexico.

Brazil is the largest market and expanded GMV by 18% year-over-year in the quarter.

Management referenced supermarket items in Mexico and increasing apparel selection as two areas that are showing strong results.

Apparel is the fastest-growing category, up 79% year-over-year last quarter.

With signs that new development is headed in the right direction, new categories and the company expanding its logistics footprint, the market will definitely expand.

MercadoLibre can grow beyond the marketplace business to become a formidable fintech company.

As it expands into other services, Mercado is fortifying its strong brand across Latin America.

Even as Amazon.com (AMZN) enters the high stakes industry, Mercado's first mover advantage can’t be underestimated.

The stock is pricey so lay off it for the time being but add with any major dips.

July 11, 2019

Diary, Newsletter, Summary

Global Market Comments
July 11, 2019
Fiat Lux

Featured Trade:

(THE INSIDER’S VIEW ON THE FUTURE OF TECHNOLOGY),
(AMZN), (GOOG), (DELL), (MSFT), (EBAY),
(MY DATE WITH HITLER’S GIRLFRIEND)

The Insider's View on the Future of Technology

Diary, Newsletter, Research

How would you like to learn the latest, most important technology trends hitting the global economy today, prepared by one of the most knowledgeable and experienced people in the industry?

It's very simple. Just click on the link below for a wrist-breaking .pdf file packed with 360 slides. It was prepared by my old friend and former Morgan Stanley colleague, Mary Meeker.

Meeker gained fame as the legendary investment banker for technology issues during the Dotcom Boom. She brought to market such blockbusters as Netscape. She also piled investors very early into Amazon (AMZN), Google (GOOG), Dell Computer (DELL), Microsoft (MSFT), and eBay (EBAY) when many of these stocks were trading at single-digit prices. You can understand why she is so popular.

Since 2010, Mary has been with the leading Silicon Valley venture capital firm Kleiner, Perkins, Caufield & Byers. She initially prepared Internet Trends 2018 as a broad ranging 50,000-foot view of technology for her firm. It has since been presented at a number of conferences.

Depending on your interest in technology, you may want to just quickly scroll through the report or analyze each and every single slide. Each slide is a gold mine of information for geeks such as myself. I list a few sample ones below.

The report also gives you some indication of the deep research in which the Diary of a Mad Hedge Fund Trader and the Mad Hedge Technology Letter engage to get you winning Trade Alerts.

To download the report in full please click here.

Enjoy.

March 4, 2019

Tech Letter

Mad Hedge Technology Letter
March 4, 2019
Fiat Lux

Featured Trade:

(RIDING THE EBAY BOOM),
(EBAY), (ETSY), (W)

Riding the eBay Boom

Tech Letter

Investors following the eBay (EBAY) saga should be cheering from the sidelines as the master plan from Elliot Management and Starboard are pressuring eBay’s management into the radical changes the investors initially called out for.

Rewarding the vulture funds with two board seats along with spearheading a comprehensive review of the business model appears more probable than not.

The forced changes have imminent repercussions to the stock price as the breaking up of the company into individual pieces is seen as coaxing out more embedded value while separating out the main e-commerce platform for a long-awaited fix.

These are two highly bullish signals.

Elliot’s reasons for altering eBay’s business model were essentially blamed on two issues - shoddy management and the commingling of growth assets with its inferior e-commerce platform within the eBay umbrella hindering value appreciation.

Even though prospects look bright on this fix, Elliot doesn’t always get its way.

Four years ago, Elliot was the primary investor in Samsung's construction division and rebuffed efforts from Jay Y. Lee, the South Korean business elite and the vice chairman of Samsung Group serving as de facto head, to have another division of Samsung purchase the construction arm for $8 billion.

In 2017, Lee was convicted of bribery and imprisoned and sentenced to three years, Elliot sold their Samsung construction shares after the tide went against them and could not prevent the eventual purchase.

Lee was later set free in 2018 demonstrating the unfettered power of the ruling Korean families and Elliot was up against it in someone else’s backyard.

Even with that setback, Elliot has been ultra-successful abroad, examples are plentiful such as in May 2018, Elliott Management seized control of Telecom Italia controlling two-thirds of Telecom Italia's board seats.

This vulture fund has been specialists at pinpointing ill-ran operations and squeezing the fat off the edges to later sell off assets for a profit.

These tactics have usually centered around cost-cutting, financial engineering, or draining the upper management swamp if need be.

Personally, eBay has the foundations to be competitive with the top e-commerce companies and they need an activist investor to turn this ship around.

In this way, the turnaround will occur much quicker than an organic method because Elliot will apply pressure on all the cancerous parts of the model and stamp them out as fast as possible.

Elliot now has a golden path to two board seats and spinning off StubHub, its uber-growth online events tickets selling platform, will guarantee Elliot and Starboard walk away from this transaction with a heavy profit.

StubHub was bought on the cheap in 2007 when online assets were trading cheaply for $310 million.

The firm contributes 11% to eBay’s top line.

The classified ads business is the other part of the high-growth online portfolio that could be sold for a profit. They operate mainly in Germany and the United Kingdom and comprise almost 10% of sales.

The plan after these premium assets are sold is to focus on mending its wounded e-commerce business.

The core business would need a flushing out of current management.

Bringing in some established hands to reroute the company’s course will boost the shares another 25%.

The phrase “more efficient use of resources” or a similar version of this meaning was used six times in Elliot Management’s letter to eBay Shareholders.

They cited in the letter that EBITDA margins have declined YOY for 12 straight quarters proving that revenue-boosting initiatives have failed spectacularly.

Elliot hopes a better run company will constitute in higher operating margins to the tune of “32% in 2021.”

In the next 3 years, Elliot wants to raise operating expenses by $250 million but reduce “wasteful spend” which they outlined as one of the main reasons hamstringing the company.

Missed opportunities is another major opportunity cost contributing to the underperformance of eBay.

eBay has been left out of the niche e-commerce areas where former eBay employees exploited this untapped source of growth.

The success of Wayfair (W), the furniture e-commerce platform, and Etsy (ETSY), the personalized crafts e-commerce platform, are two glaring examples of sales that should have been registered by eBay but gobbled up by two minnows.

In short, Elliot’s flawless execution and aggressive plan are ideally playing itself out how they wrote it up from the beginning.

It’s hard not to see eBay’s stock higher a year from now as long as Elliot and Starboard get their way.

The brilliant part of this whole turnaround is that eBay doesn’t have to become Amazon to reap share appreciation, they merely need to be not as bad as they were which at the first stage of rebooting the business is the lowest hanging fruit out there.

Once the company becomes mature and more successful, growth and beating relative expectations are harder to achieve.

I am bullish eBay - buy on the next pullback.