from TSC,
As bidding for the online auction business heats up, analysts are lining up to shout
their support for eBay (EBAY:Nasdaq).
The San Jose, Calif., Internet company, the early leader in staging the online auctions
at which consumers buy all kinds of things they don't need, was sharply lower Friday
as a third rich competitor prepared to invade eBay's lucrative turf. But a number of
analysts said the move wouldn't seriously threaten eBay's auctioneering
pre-eminence.
The catalyst was a report that Microsoft (MSFT:Nasdaq), Dell (DELL:Nasdaq),
Lycos (LCOS:Nasdaq), Excite@Home (ATHM:Nasdaq) and other Net-savvy
companies would join forces to provide a competing auction network. The Wall Street
Journal reported Friday that the new service was being assembled by closely held
FairMarket, Woburn, Mass., which sets up and runs auctions sites for companies.
Earlier this year eBay faced down auction challenges from retailer Amazon.com
(AMZN:Nasdaq) and all-purpose Internet behemoth Yahoo! (YHOO:Nasdaq).
The Internet sector advanced early despite eBay's woes. TheStreet.com Internet
Sector index was up 13.46, or 2.2%, at 621.31 as it benefited from strength in the
dollar, which was supporting Treasuries and in turn stocks. eBay was off 7 3/4, or
5%, at 144.
"I wouldn't take this lightly," said Faye Landes, an analyst with Thomas Weisel
Partners. "Betting against Microsoft is tough." Investors agreed: Microsoft was up
5/16 at 94 5/16; Lycos was up 9/16, or 1.3%, at 43 9/16; and Dell was up 5/8, or
1.3%, at 47 3/8.
But others were more sanguine on eBay's prospects.
At Goldman Sachs, which has underwritten for eBay, analyst Rakesh Sood pointed
out that eBay runs auctions only. As a result of that narrow focus, the company will
maintain its competitive advantage, the analyst told TSC.
"It's an interesting approach, but consortiums have a tough time working together
because they have different agendas and disparate brands," Sood said. "The issue is
not just aggregating lots of listings, but also being successful in building a passionate
community of active participants and converting those listings to sales."
Unsurprisingly, eBay spokesman Kevin Pursglove agreed, telling TSC that what
separates the auctioneer from its challengers is its "unique base of users."
"They are incredibly loyal to eBay and incredibly loyal to other eBay users," said
Pursglove. "And while it may seem like imitating eBay's business model is a simple
task, one thing that is really hard for many of our competitors to understand is the
uniqueness of the eBay community and the eBay users."
CIBC World Markets also came to the defense of eBay. In a report titled
"Challenging the Champ? Not a Contender," analyst John Segrich wrote that he does
not believe "that one can force the creation of a community." Segrich, who added that
a community "must evolve naturally," reiterated his strong buy rating on eBay and his
price target of 180, writing that any weakness makes for a buying opportunity. CIBC
hasn't done underwriting for eBay.
Landes countered that eBay may need to spend more money on marketing even as it
spends heavily to ensure that its widely discussed technical problems don't recur.
"I'm not saying eBay is going out of business, but this will raise the ante," she said.
But Sood said that with its current revenue stream, eBay has a cushion built in to
spend more on marketing if it needs to.
Microsoft also has recently challenged priceline.com (PCLN:Nasdaq) by launching a
name-your-price hotel service along the lines of the priceline model. That challenge is
the subject of an article in this week's editions of Business Week under the headline
"A Net Monopoly No Longer."
The article indicates that while the law allows companies to get patents on methods
of doing business, intellectual property experts are increasingly skeptical that
priceline.com's will hold up in court. The article explains that reverse auctions existed
long before the Internet, and just transferring a selling technique to the Web does not
necessarily constitute a novel invention. priceline was up 1 3/8, or 2.6%, at 58 1/2. |
