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Tickers in this Article: EBAY, AMZN, TJX, OSTK, MA
On Wednesday, eBay (Nasdaq:EBAY) held its 2009 analyst day in which it outlined a "three-year road map for growth". The biggest news to come out of the meeting includes a concession that eBay is not ideally positioned to compete head on with the likes of Amazon.com (Nasdaq:AMZN) in e-commerce. Additionally, PayPal continues to grow in influence at the company. eBay also issued a financial outlook through 2011. Let's take a look at what this means for investors over the next couple of years.

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Road Map Details
CEO John Donahoe opened the investor day with his vision for eBay, which consists of connecting buyers and sellers through three primary business units. The problem child has been the namesake auction marketplace, which has fallen from 50% of total sales to under 15%, as new sales formats like classifieds and fixed price purchasing have grown in influence. PayPal also has grown substantially in size since it was purchased and now accounts for one-third of overall sales. Donahoe characterized PayPal as having bigger potential than the online marketplaces, which have grown to include Shopping.com, StubHub.com and half.com.

Skype represents the third and final operating unit. While eBay only anticipates approximately $500 million in sales from Skype, it sees it as a leader in providing online voice and video services. Donahoe conceded that the original motivation for acquiring it was to facilitate communication between marketplace buyers and sellers. However, it has more or less developed into a connecting-people business. Still, according to Donahoe, Skype is projected to "more than double its revenue to over $1 billion in 2011," as its user count has grown to more than 400 million.

Financial Impact
In terms of total company guidance, eBay expects between $10 billion and $12 billion in revenue by 2011, as PayPal and Skype grow their top lines rapidly. Earnings growth is projected "in the mid-single digit range by 2011," while free cash flow is estimated to total between $6 billion and $7 billion from 2009 to 2011, meaning the company should average $2.2 billion annually, or approximately $1.65 per diluted share. (Explore the controversies that can surround companies' forward-looking statements in Can Earnings Guidance Accurately Predict The Future.)

The marketplace businesses are expected to increasingly emphasize fixed price, classifieds and a smaller online auction market, which is another way of saying eBay will return to its roots as an online flea market for individuals, as opposed to hawking new products - a territory that Amazon has come to dominate. eBay also will pursue a secondary market to compete with Overstock.com (Nasdaq:OSTK) and, in the brick-and-mortar world, TJX (NYSE:TJX).

Payment Options
The emphasis on 2011 guidance indicates that the next couple of years will be used as a period to transition eBay back to steady sales and earnings growth, which investors had grown accustomed to. Donahoe admitted that its marketplace business "has not kept up" competitively for some time now and that he will look to focus on PayPal, the leading online payment division, which is on track to become as successful as MasterCard (NYSE:MA) in facilitating financial transactions across the globe.

Crossroads?
Is eBay worth more broken up into three separate businesses, given that each is largely an independent entity? Donahoe admitted that PayPal was created to facilitate payments between buyers and sellers on eBay and that its potential lies in diversifying into other businesses. And Skype has little relation to the other units. For the time being, the company will remain as three operating units. But if the current road map doesn't pan out, eBay has other avenues to explore to enhance shareholder value.

Bottom Line
At under ten times projected free cash flow over the next few years, investors stand an excellent chance of profiting from eBay, if it attains its three-year goals. (For further reading on investing in companies in this space, check out our Internet Industry Handbook.)

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