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Technology Stocks : eBay - Superb Internet Business Model -- Ignore unavailable to you. Want to Upgrade?

To: CookiePuss who wrote (5987)	10/27/1999 11:12:00 AM
From: LTK007	Respond to of 7772

October 27, 1999 10:50 AM EBay Plummets, Even as Meeker, Others Rush to Its Defense By Cintra Scott and Ian Mount SHARES OF EBAY (EBAY) took an 11% dive this morning, despite the fact the Internet auction leader beat expectations last night with its third-quarter earnings report. Margin troubles and rising expenses related to the company's well-publicized outage problems soured investors on the results. And after a two-day runup in advance of the earnings, a little disappointment went a long way. But several analysts were out this morning saying the pummeling is nothing more than a buying opportunity. "It's not unusual for psychological dips to have an impact on this type of company," Morgan Stanley's Mary Meeker offered in a note this morning. "We think eBay is a winner." Prudential Securities analyst Mark Rowen echoed Meeker's optimism: "The quarter was underwhelming," he said, "but we reiterated a Strong Buy rating on eBay, noting that the stock is high risk." Not everybody was so enthusiastic. "We believe that the risk:reward scenario surrounding eBay stock has increased considerably, particularly given the uncertainty surrounding the company's operating model over the next several quarters," said Deutsch Banc Alex Brown analyst Shaun Andrikopoulos. Several other firms issued downgrades. The biggest worry was that gross margins fell, from 80% to 71%, year-over-year. CFO Gary Bengier explained to analysts in a conference call Tuesday that the squeeze came because of spending on servers and that engineers needed to get to what eBay calls "utility-like stability." CEO Meg Whitman said it would take another three to four months of "hard work" to get there. (Remember eBay's site-outage problems this past quarter?) But in the question-and-answer portion of yesterday's conference call, Prudential's Rowan pointed out that revenues per customer fell significantly. Does this mean eBay's growth is topping off? Bengier responded that new customers are less "productive" than veterans until they grow accustomed to the site. (Skeptics may wonder, of course, if the newcomers are simply less enamored of online auctions than the early adopters.) And this was a big quarter for adding new users. Registered users soared to 7.7 million by quarter's end -- up a whopping 509% from the 1.3 million at the end of the third quarter last year. Here's a rundown of the other key numbers. EBay's revenue came in at $58.5 million -- 169% higher than last year's sales and above analysts' expectations. Gross merchandise sales (that is, the total value of goods traded on eBay.com) climbed to $741 million -- 280% higher than last year. There were 36.2 million auctions to bid on during the quarter -- up 292% over last year. EBay's quarterly highlights include the site's new car auctions; "Go Local," a new regional search function; "eBay Everywhere," which lets auction addicts follow the bidding action from their SkyTel pagers or PalmPilots; and a new AOL (AOL) co-branded site to promote eBay auctions. Revenue from eBay's brick-and-mortar auction subsidiaries (namely the nation's fourth-largest auctioneer, Butterfield & Butterfield) decreased. But that came as no surprise; it's a seasonally weak quarter for the business. Overall, eBay thanked its swarm of new visitors for driving the quarterly success. Alex Brown's Andrikopoulos wasn't buying. He notes that eBay's multiple of 62 times 2000 earnings estimates is a little pricey for a stock with falling margins and severe operational problems. That's a "valuation only afforded to those companies with near-perfect business fundamentals AND flawless execution," he wrote. He noted that Yahoo! (YHOO), America Online (AOL) and Amazon.com (AMZN) come to mind as those kinds of companies. But Meeker is taking the long view. She said in her note that there are several good reasons for the slower third-quarter growth. First, she said, the law of large numbers means growth has to slow. Also, the third quarter "should be a seasonally slow quarter -- people do less stuff in the summertime," she said. But the fourth quarter will be "seasonally strong," Meeker predicts. And she applauds eBay's efforts to expand the types of items that sell on its site. "To say that most Internet stocks carry hefty valuations is an understatement (and we continue to maintain that many are overvalued)," Meeker concluded. "In this environment, anything less than perfection in happyland can cause investors to pause." Right now, it seems, the markets are doing just that when it comes to eBay.