eBay's Whitman Ringing Up the Sales
By Scott Moritz, Senior Writer, 03/06/2003 02:36 PM EST
thestreet.com
In their long-running love affair with eBay (EBAY:Nasdaq - news - commentary) , investors may have overlooked one important growth area: The amount of stock being sold by CEO Meg Whitman.
The company's swift expansion has made it something of a throwback to the tech boom of the late '90s. Sales rose 89% last year, while margins came in at a lush 80%. The stock has more than held its ground in a sinking market, rising 37% in a year and hovering near a 52-week high this week.
But squinting through the glare of eBay's shining financial performance, some observers have turned a skeptical eye to another set of numbers: Whitman's Securities and Exchange Commission filings.
While Wall Street has been buying eBay by the truckload -- driving the stock to a valuation that makes some money managers squeamish -- Whitman has been selling it in big clumps. Through an investment vehicle called Sweetwater Trust, named after a family farm in Tennessee, Whitman has raked in a cool $104 million in eBay stock sales over the past year.
While stock sales by a top executive hardly qualify as scandalous, they do send a curious signal to investors who have been buying in large part on the promise of continued good fortune at the San Jose, Calif.-based company.
"I'd say that's not a good sign, especially if it's true that they are still early in their growth stages," says Ken Winston, a money manager with Lee Munder Capital Group in Boston who has no eBay positions.
Standing Out
An eBay spokesman downplayed Whitman's deals. "This is normal selling activity for estate planning and diversification purposes," says eBay spokesman Kevin Pursglove. He adds that Whitman's sales were similar to those done by other eBay executives.
But according to SEC filings and research by Thomson Financial/First Call, the volume of Whitman's selling makes her stand out among eBay's top shareholders. Indeed, Whitman sold eight times as many shares as the company's top two individual investors in the last year.
eBay's founder and top shareholder, Pierre Omidyar, sold 200,000 shares for $12.5 million -- trimming his 65 million-share stake by less than 1%. And the company's No. 2 shareholder, former President Jeffery Skoll, did not part with any of his 36 million shares.
By contrast, Whitman's sales over the last year -- she sold 1.6 million shares, out of an April 2002 total of 9.2 million -- amounted to 18% of her holdings. She didn't buy any stock during that time.
As Pursglove notes, other eBay executives have sold shares. But unlike Whitman, some of them also were buyers over the last 12 months. Operating chief Maynard Webb sold about $16.9 million worth of shares over the last year while exercising options to buy $12.5 million worth. Similarly, CFO Rajiv Dutta sold $9.2 million worth of stock and bought $200,000 worth.
Shock and Awe
eBay's dominance of the global flea market has helped it win over skeptics. Even the few remaining critics regard the company with a degree of awe. The one common concern among investors and eBay watchers is the excessive value the market places on the stock.
Even by bubble-era standards, eBay is incredibly expensive. With a market cap of $24 billion and revenue last year of $1.2 billion, eBay trades at 20 times sales. Yet it seems that with growth stories such a rarity today, people have shown a strong willingness to pay top dollar for the stock.
Fred Hickey, editor of the High-Tech Strategist newsletter, notes the comparison between today's eBay and Microsoft in 1990, when the young software giant had similar revenues and gross margins. Back then, investors were confident that Microsoft had a fruitful path ahead of it and gave it a market cap of $5 billion.
That makes eBay, Hickey points out, worth five times as much as the 1990-vintage Microsoft.
"I tip my hat to them -- there aren't a lot of ways to make money on the Internet," says Hickey. "But will they be able to keep finding new areas like international sales to keep up their growth rate and justify their market cap? I don't think so."
And as for CEO Whitman, it maybe not a bad time to continue selling.
If Winston were in Whitman's shoes, he says, "I'd be doing the same thing."
Maybe investors would be wise to consider applying some of Whitman's selling strategy as well. |
