William,
I'm basically out of the market...but I'm short eBay @ 159 even knowing another eBay split is coming.
>Behind Ebay's Numbers
By Aram Fuchs
Wall Street and the media dutifully reported that EBAY (EBAY) earned $0.06 a share in the first quarter, handily beating the consensus estimates of $0.03 a share. Fertilemind.net thinks the pros and the press missed something Triple-H big. If the pundits had subtracted the $10.4 million in interest income, they would have realized that the core business earned only $452,000 in the quarter, 94% below the $7.8 million in operating income EBAY reported in the year-earlier period. Clearly, the auction business is becoming much more competitive while at the same time the newest registered users are less active than the early adopters.
Here's some more data to bolster Fertilemind.net's point:
Registered users grew 230% year-over-year, but listings only rose 133% and dollars sold on the site were up only 113%. This would be fine if the new users ? who clearly are not selling as much ? bid up the site's offerings substantially. But registered users are not bidding up the current base of product enough to make up for the slower growth in new listings. Amazingly, this is occurring as EBAY expands into such big-ticket items as automobiles and real estate.
While revenue increased 127% year-over-year, the cost of goods sold increased 192%. EBAY is being forced to spend a greater percentage of its revenue to keep the site up so customers do not click over to competitors like AMAZON.COM (AMZN) or YAHOO! (YHOO).
In the conference call, EBAY told analysts to raise revenue estimates for 2000 by $20 million. But the company also said to keep earnings estimates the same. It looks like the company is going to have to "invest" the entire $20 million in the business. This means that the margins in the business are going down more quickly than the company expected.
I am a major customer of EBAY. I have bought video games for my cousin and teddy bears for my young niece. I have even bid on many other auctions that, luckily, I lost. Going to the site is fun, and EBAY is a great service. But, as an investor, I have to separate my feelings as a customer from my cold-hearted analysis of EBAY as a stock. And I think it is clear from the first-quarter report that the fundamentals of the business are deteriorating quicker than a used Pez dispenser. I say, sell the stock. |
