>>with its only profit being generated by interest income on its recent follow-on offering of stock.<<
Let's complete the story.
Business: Online auctioneer
Year ended Dec. 31 1998 1997
Revenue (millions) $47.4 $5.74
Earnings (millions) $2.40-a $0.03
Latest quarter (March 31, 1999):
Diluted per-share earnings: $0.05 vs. N.A.
Average daily volume: 3,935,628 shares
Shares outstanding: 125.2 million
Trailing P/E: N.A. Dividend yield: none
a-Includes charges of $3.1 million for stock compensation and $1.2 million for acquisition costs.
--------------------------------------------------------------------------------
That may not sound like such a big deal for an Internet company. But eBay's profitability has long set it apart from its Internet peers, the vast majority of which have never earned a dime. And its ability to produce on the bottom line has long been one of the big selling points for the stock on Wall Street.
Some big hedge funds are making big bearish bets against the stock. And a few analysts warn not only that the coming quarter, which will be reported on July 26, will be a letdown to some investors but also that the second half of the year could hold even more disappointments for investors.
"We liked their model before," says Boykin Curry, of Kingdon Capital, a New York hedge fund. "But now we think it's problematic," he says, though he declined to comment on whether the fund has a bearish bet, or short-sale, position in the shares.
It is not just outage-related problems that concern Mr. Curry. He says competition from Yahoo!, which has a growing auction business of its own, and Amazon.com, which has also entered the auction business, is beginning to hurt eBay. Indeed, the number of online auctions being held by Yahoo these days has risen to over 400,000 from about 200,000 only a couple of months ago. Amazon.com doesn't release its number of auctions.
By comparison, eBay still dwarfs both Yahoo and Amazon.com, with nearly 2.3 million online auctions being conducted on its site Wednesday afternoon. But last week, eBay had an unusual week-to-week decline in its number of auctions that Mr. Curry says he believes wasn't related to its outages. "Some of what was going on with eBay may have been a fad," he says. But, he adds, "The spin on eBay was they were the winner in a winner-take-all category. But Yahoo has proven that if you have enough eyeballs, you can inject yourself into the space," he says.
Wall Street, too, is issuing some cautionary signals. In a note to clients on Tuesday, Shaun Andrikopuolos, a Deutsche Banc Alex. Brown analyst, said he believes "near-term pressure [is] likely on eBay stock," though he maintained his "buy" rating on the stock. He also lowered his second-quarter earnings estimates on eBay to $37 million from $41 million.
What is more, he warned that more cuts to his estimates may be necessary. "We believe the potential dilution impact from the four recent acquisitions and the potential for increased advertising and R&D expenditures at eBay could result in a lower operating income forecast than our current second-half 1999 forecast," he said. In April, eBay acquired Butterfield & Butterfield, a San Francisco auction house, for $240 million. Since mid-May, it also has acquired an automotive auction business, a German auction business and Billpoint, a technology company, each for an undisclosed purchase price.
Even the stock's biggest fans are hinting that rough sledding could lie ahead. Says Rakesh Sood of Goldman Sachs, "It's our No. 1 stock for the year." "But," he adds, "some people were expecting the company to meet or exceed" his estimate for the second quarter before he lowered it to $36.5 million, or three cents a share, following the June 10 outage. And, he says, "upside" to those estimates "may be limited in the near term." He is also expecting the company to break even on an operating basis, but to report about $6.3 million in profit from interest income.
An eBay spokesman says the company didn't want to "respond to the guessing that's going on on Wall Street." But he added: "We've made it clear we'll make additional investments in human resources and equipment" partly due to the outage.
Internet investors may not be prepared for "limited upside" when it comes to eBay, however. After all, mind-blowing growth potential is mentioned as one of the reasons eBay gets a multiple of 700 times this year's earnings estimates, even after Wednesday's close, when it finished the day at 138 1/4, down 2 1/2, on the Nasdaq Stock Market.<<
|
