ANALYSIS-"Value-trap" eBay vs "priced to perfection" Amazon

* EBay undervalued, but core business risky - Street
* Recently derided, Amazon now on top with pricey shares
* Both companies report Q1 results next week

By Alexandria Sage
SAN FRANCISCO, April 13 (Reuters) - Lack of confidence in
eBay and sticker shock over Amazon's valuation has left
investors struggling to decide whether it's time to jump in.
Once the e-commerce leader, eBay Inc is cheaply
valued but not inspiring confidence on Wall Street with its
confusing three-unit business model. And while Amazon.com
is stealing the spotlight, the online retailer's lofty
price yields little fruit in the short term.
Longer-term, analysts say Amazon, which has had spectacular
success reversing Wall Street's pessimism about its prospects
and is innovating in technology and processes, is the better
bet versus a stop-and-go eBay that might be overestimating its
own growth prospects.
Investors will get a fresher glimpse of both companies when
they report first-quarter earnings next week.
"Amazon is great but the valuation just scares us," said
Solaris Asset Management's Tim Ghriskey, who does not own
shares in the company because of the high price.
"At this point, the Street basically calls eBay a value
trap," he said. "'It's cheap, but it's cheap for a reason.
Things aren't going to be better; they'll get worse.'"
EBay's sagging price-to-earnings ratio, and the expensive
price tag on Amazon shares are clear barometers of investors'
appetite for the two e-commerce giants inexorably linked in
Wall Street's mind.
While shares of eBay have risen 7.5 percent since January,
Amazon shares, on a steady upward climb since November, are up
55.5 percent.
Shares of eBay are valued at 10 times projected 2009
earnings, compared with Amazon's 54 times.
At eBay, an identity crisis borne of a shift away from
auctions hasn't helped to convince investors of the company's
future vibrancy. Nineteen out of 30 analysts polled by Reuters
Estimates recommend holding the stock.

UNCONVINCING TURNAROUND?
The online auction pioneer is touting impressive growth at
its PayPal Web payments service and Skype Web telephone company
-- once-auxiliary units -- while trying to assure Wall Street
it can invigorate its stalled marketplaces business which has
been hit by competition from Amazon and others.
"They admit to a lot of mistakes and they have a very
ambitious plan to turn the company around over the next couple
of years," said Solaris Asset Management's Tim Ghriskey.
But he cautioned: "The Street basically doesn't believe
they're going to do it."
EBay predicts 2011 revenue of $10 billion to $12 billion,
compared with the $9 billion expected by analysts.
"Until (eBay) has positive momentum on their marketplaces
business, it's hard for the stock to react and the valuation
keeps creeping down," said Royal Capital Management's Robert
Medway.
As Morningstar analyst Larry Witt said: "People are saying,
'It's got some interesting segments, but at best we think it's
flat growth or 3 percent growth. That's not a reason for us to
buy it.'"
He added that the market appears to have priced in a "very
severe decline" in eBay's auction business.
Amazon has the opposite problem. Its dizzying valuation
caused Barclays Capital analyst Douglas Anmuth to write that
the online retailer was "priced more toward perfection." He
downgraded shares to "equal weight" from "overweight."
The company, which analysts say has navigated a difficult
spending environment well, was not always so well-loved.
As recently as last year, Wall Street was griping about
Amazon's decelerating margins and focus on sales instead of
profits. But as the recession took hold and consumers began
cutting back, investors went ga-ga at the company's ability to
lure buyers and post double-digit sales rises.
"Amazon went through years of pain," Ghriskey said, as Wall
Street knocked projects like discount shipping program Amazon
Prime -- now lauded as a traffic driver -- and profit-crimping
technologies now deemed smart, such as the e-book reader
Kindle.
Still, some investors say eBay might eventually get its
house in order -- just don't expect short-term results.
Value investors are still getting a deal on eBay, argued
Medway, even if its marketplaces unit continues to struggle.
Returning cash to shareholders could be the key to mollify
eBay investors in the short term. Investors have pushed for
more capital, including a dividend, with some complaining that
eBay sinks more money into acquisitions than share buybacks.
Also, a sale of Skype looks increasingly likely amid
reports that the unit's co-founders are eyeing a purchase.
"If eBay doesn't fix marketplaces, it's still worth more
than $15," said Medway, who owns the company's stock, citing
eBay's dominance in auctions. "This isn't General Motors
where they have a lot of expenditures. This is an all cash-flow
business. It's worth something."
(Reporting by Alexandria Sage; Editing by Edwin Chan, Richard
Chang)
((alexandria.sage@thomsonreuters.com, +1-415-677-3923; Reuters
Messaging: alexandria.sage.reuters.com@reuters.net))
((See http://blogs.reuters.com/shop-talk/ for Shop Talk --
Reuters' retail and consumer blog.))
Keywords: EBAY/AMAZON

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