Value Remains in eBay Shares
by Elyssa Jaffe
10:45:00 AM May 04, 2001 GMT
Online auction house eBay [EBAY:Nasdaq] told attendees at an investor conference this week that there are billions of dollars of potential business still to be won. It is due to such limitless potential that we continue to believe that eBay remains one of the best picks in the Internet sector. Though the shares are up 55% year-to-date, continued appreciation is expected in the months ahead. As such, we rate the shares a Buy.
The global market for goods that can be sold online, which includes automobiles, collectibles, art, and sporting goods, was worth about $1.6 trillion in 2000 and by 2005 is expected to be a $2 trillion market. eBay has hardly scratched the surface on the market -- it's penetrated only 0.46% of the market and predicts that that number will rise to 1.5%-2% by 2005.
Relentless demand combined with untapped potential continues to drive results at eBay. In the Q1 eBay posted results well ahead of expectations. Earnings jumped to $0.11 per share, up from $0.02 a share. And revenue soared 79%, fuelled by continue success both at home and abroad. Further growth is expected to come from innovative new partnerships. eBay has begun to link its trading platform to other sites as a way to drive traffic. The company recently formed an alliance with Microsoft [MSFT:Nasdaq] to help diversify its customer base.
eBay recently increased its revenue forecasts for the next two quarters. The company said total revenue in the next two quarters could be $10m-$15m higher than previously anticipated. eBay plans to reinvest most of that back into the company, and therefore bottom line forecasts of $0.08 per share in the Q2 and $0.09 in the Q3 still prevail.
We believe that eBay is the premier play on the Internet sector today. The company continues to increase guidance and this is most refreshing given the current market.
On April 20,we said: " eBay [EBAY: Nasdaq] penetrated through the one-year downtrend, which started in March 2000, on a gap up April 18. The stock has been making big gains the two days since. A bullish reversal is likely, especially with a formation of a double-bottom pattern. Currently, the stock has come up to strong resistance at $54/$55. Look for some consolidation in the near-term back to the mid to high $40's where it will be more attractive. Therefore, IDEAglobal expects eBay to rise to $62 in one to two months. Resistance lies at $54/$55. However, a close under $45.50 requires a reassessment of the situation."
We maintain this stance on eBay. Resistance rests at $55. It is trading at $50.64.
Risk Tolerance: ***
(* Low risk, ***** High risk)
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