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eBay Shares Surge as Paypal Escapes Regulation

By Brett Goldfarb in The Stock Market
June 30th, 2011

Investor worries over Paypal being regulated by the Federal Reserve as a “payment network” were lifted Thursday and shares of eBay have surged nearly 5% since the ruling.

ebay paypalShares of eBay have seen nearly a 5% surge since Thursday as the new Federal Reserve rules have stated that alternative payment systems such PayPal are not payment card networks subject to a provision known as the “Durbin amendment” which puts a cap interchange fees.

Regarding the decision, Youssef Squali, an analyst at Jefferies stated “the primary reason Paypal does not seem to fall under the definition of a payment card network is that for any PayPal transactions that take place between a merchant, a customer and the customer’s bank with PayPal as the payment operator, the transaction is settled on PayPal system (versus being routed to the individual parties), whereby PayPal makes the appropriate debit (customer) and credit entries (merchant).”

The new Federal reserve rules are anticipated to greatly boost eBay’s PayPal unit which is the fastest growing segment of it’s business. Paypal will also benefit from the significant ruling many eBay investors were fearing regulation would cost Paypal millions, if not billions of dollars in the long run.

As a result of the ruling, Bank of America analysts upgraded shares of eBay to “buy” from “neutral” Thursday morning stating there was a 25% upside to $38 price objective, which has remained unchanged.

Citigroup analysts also upgraded the stock to “buy” from “hold”. They raised their price targets to $38 from $36, and raised their 2012 price-to-earnings target multiple to 17 from 16.

With an estimated $2.22 billion in payment transactions estimated to flow through PayPal in 2012, it should mean approximately $74 million to $96 million in cost savings.



eBay Investors and Investment Whiplash

By Martin Harris in The Stock Market
June 10th, 2011

eBay’s stock has been vacillating so wildly that all the ups and downs have been giving shocked investors whiplash.

WhiplashOnline auction giant eBay saw it’s stock vacillating wildly once again this week after an upgrade from “sector perform” to “outperform” by Pacific Crest’s Steve Weinstein. Following some aggressive trading, it appears the bulls are looking for more gains in the near future.

Early yesterday, tracking systems recorded a number of buyers in the July 30 calls for $1.50 and $1.52, with about 4,000 total contracts purchased. The June 30 calls were also quite active, with more than 1,400 bought for $0.88 to $1.09.

While volumes were noticeably less than previous positioning, eBay has managed to swat off negative press regarding their failing marketplace and attract some buying of the October 32 calls earlier this month. Calls outnumbered puts by more than 2 to 1 yesterday, which is yet another indicator the consensus remains bullish.

eBay stock closed yesterday (Thursday) up 0.29 percent at $30.66 but closed today (Friday) down 2.28% at $29.96, once again showing a fickle sentiment towards the company that just can’t seem to hold momentum. Despite the positive new stories about Pacific Crest’s upgrade, and the mild upswing in price, the down side flattened out any gains.

Although Pacific Crest said eBay could see more than 30 percent upside from here, citing prospects for its core business and PayPal division, the general consensus is that eBay is just settling down from hitting a 52 week high of $35 per share earlier this year. There are many hidden factors, such as PayPal facing strong competition from emerging rivals and eBay’s marketplace floundering because of increased fees charged to merchants, leading them to look for alternative to selling on eBay.

One thing is certain and that is nobody knows exactly where eBay is headed to but it’s likely to be a wild ride. Whenever a stock vacillates as wildly as eBay has been doing for the last few years, there are bound to be a lot of winners and a lot of losers. It’s enough to give investors whiplash.

eBay is scheduled to announce earnings on July 20, just a few days after the options expire on July 15.


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