- eBay's data security breached, but PayPal remains secure.
- eBay has been hit hard by Google's new search algorithm update.
- The stock is reasonably priced and we maintain a 'hold' rating.
eBay (NASDAQ:EBAY) seems to have acquired the knack of staying in the news, and not always for the right reasons. eBay’s Q1 2014 earnings release surprised investors as the company took a $3 billion tax hit to repatriate $9 billion to the US. Now the e-commerce bigwig is feeling the heat after getting slammed by Google’s search algorithm update and a cyber-attack which leaked personal information of about 145 million user accounts.
eBay database compromised by cyber-attack
On 21 May 2014, eBay announced that it would be asking its users to change their passwords after a cyber-attack compromised a database containing information about 145 million eBay users. The hackers gained access to eBay’s corporate network by compromising log in credentials of 3 employees. The compromised database contained information like customers’ names, e-mail id’s, addresses, encrypted passwords and phone numbers and is believed to have been compromised between late Feb and early March.
eBay is believed to have detected the security breach about 2 weeks before the announcement. The positive is that no financial information was stolen by the hackers. Further, the theft doesn’t extend to PayPal, since its information is stored separately on a secure network, with all financial information being encrypted.
However, concerns about data security exist after what is billed as one of the largest attacks on a corporate entity. Whether this will affect eBay’s e-commerce or payments business remains to be seen.
eBay’s Google search visibility crashed post Panda update
A little over a year ago, the company conveyed through a research study that paid search listings didn’t help eBay to a very large extent and that it would focus on organic search results to acquire customers.
Sadly, with the roll-out of Google’s search algorithm update named Panda 4.0, eBay’s strategy seems to have backfired. eBay has lost its Google search page 1 slot for a number of search queries. According to Searchmetrics, eBay is the second biggest loser following Google’s update.
A large amount of traffic is acquired by e-commerce portals from Google search results, and this development could really hurt eBay.
The only consolation if any, is that eBay does spend on ‘product listing ads’ which shows image based suggestions/ads to potential shoppers. In fact, eBay is Google’s largest individual ‘product listing ads’ client, while Amazon does not currently spend on this traffic source. The company will be hoping for that to compensate at least in part, for the traffic it might be losing due to poor search listings. All this clearly means a gain for Google and a loss for eBay.
At $52 a share, eBay trades at a Price/Sales (P/S) multiple of 4, which is not outrageous in the internet businesses space. However, the company’s valuation is largely based on its stability and predictability, and the recent events raise questions about these factors.
PayPal has been a primary driver of growth at eBay, and its acceptance as a payment option of Google’s android ‘Play Store’ is a definite positive. However, it’s too early to call how the other developments will impact eBay’s business. We continue to maintain our ‘hold’ rating for eBay.
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