Another bullish endorsement of EBAY.
Analyst Forum
A look at online auctions
Analyst says a few will take home all the spoils
By Colleen Bazdarich, CBS MarketWatch
Last Update: 4:52 PM ET Sep 22, 1999 Personal Finance News
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PORTLAND, Ore. (CBS.MW) -- In cyber-years, online auctions are old news. EBay was the forefront of an up-and-coming new Web niche just last year. Now it's a staple Internet stock.
Its rapid success sent investors on the prowl for the newest auction extravaganza, but as market performance in the last few months has proved, not every e-commerce startup is a guaranteed goldmine.
"For the winners, the rewards are immense.
For an also-ran, there is no reward."
Steve Weinstein, Pacific Crest
Steve Weinstein, e-commerce analyst at Pacific Crest, says that only a few select companies will be able to survive in the fiercely competitive online auction niche.
"For the winners, the rewards are immense. For an also-ran, there is no reward," he says of the sector.
Weinstein talked with CBS MarketWatch's Colleen Bazdarich about the recent Internet slump and EBay's strong bounce back. He also discussed the future of the online auction companies and gave some advice for investors looking to come out of this crazy race on the winning team.
CBSMW: There have been some problems in the tech sector lately. How have the online auctions been doing in the last three or four months?
Weinstein: It has certainly been a pretty wild ride for the Internet space as a whole. The companies that are perceived as market leaders -- EBay (EBAY: news, msgs) and Amazon (AMZN: news, msgs) -- have really bounced back nicely from their lows. EBay has pretty much doubled in the last month and a half or so. It dropped to the low 70s, now it is basically $140.
Onsale (ONSL: news, msgs), who is perceived as one of the second-tier companies, has suffered the same fate as everyone else who has been put in that class. It came down with the market correction and has stayed there.
CBSMW: Will growing competition affect these companies?
Weinstein: Well, they are actually very different businesses. EBay and Amazon offer person-to-person auctions. Onsale is a business that auctions off products to an individual. In a person-to-person marketplace, what you really need to be effective is a critical mass, to create a community. People will naturally gravitate to the largest, most active marketplace, which in this case is EBay.
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As a result, in the person-to-person space -- which has recently gotten fairly competitive with announcements by companies like FairMarket that they were going to try to aggregate other suppliers -- I really don't see competition as a threat to the leaders.
If you look at the top three auctions -- EBay, Amazon, and Yahoo (YHOO: news, msgs) -- and then aggregate everyone else, I mean everyone else, (the activity at those other auctions) is not even a fraction of what the leaders have.
I think that the new FairMarket Auction, which is aggregating an ungodly number of sites, including Excite (XCIT: news, msgs), MSN (MSFT: news, msgs), Cyberian Outpost (COOL: news, msgs), Dell Computer (DELL: news, msgs), still only has half the listings of an Amazon -- which is number three.
CBSMW: Do you have any picks in the sector?
Weinstein: Well, I have a "strong buy" on EBay and Amazon and I have a "market perform" on Onsale.
CBSMW: What does the future hold for this sector? What should investors know about what the sector is going to look like in the next year or so?
"This sector is one of the largest opportunities available on the Internet but it is also one of the closest things to a winner-takes-all market."
Steve Weinstein
Weinstein: You know, it is a tremendous market opportunity. This sector is one of the largest opportunities available on the Internet, but it is also one of the closest things to a winner-takes-all market. In our view there won't be 100 person-to-person auction sites of equal size. It will be more of an oligopoly. For the winners, the rewards are immense. For an also-ran, there is no reward.
CBSMW: What specific risks should investors look out for when investing in the online auction companies?
Weinstein: There are tremendous risks. It is still hard to say if someone will come up with a new technology or a new approach that will be more interesting. You know, maybe someone will find a different model that tends to work better. We are still very early in the game here. [A small percentage] of the world has shopped online. From a competitive standpoint there is still a lot of opportunity for other companies to get footholds in markets and become challengers down the road. It is just too early to say, "Here's the winner." We have a good idea of who some of the most likely winners are, but it is still the first inning of this game.
Colleen Bazdarich is a personal finance reporter for CBS MarketWatch.
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