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Technology Stocks : John, Mike & Tom's Wild World of Stocks -- Ignore unavailable to you. Want to Upgrade?

To: Jorj X Mckie who wrote (918)	4/27/2000 9:13:00 AM
From: Original Mad Dog	Respond to of 2850

Look at the bold text from Mohan's message. This is the part that scared me. Looks to me like EBAY's profit may have been illusory all along, created by suppressing infrastructure spending until the site just couldn't take it anymore. Once the site started breaking down repeatedly, they had to make those investments, and now their operating profit has virtually disappeared. EBAY's explanation is: "In the first quarter, the Company continued to make significant investments in people, customer support, and equipment to support the site's infrastructure. Personnel costs were the largest single driver of expense growth. Both product development and general and administrative costs increased due to personnel additions and depreciation and amortization expense. General and administrative costs were impacted by increases in personnel and legal costs. Sales and marketing expenses also increased over the prior quarter as the Company invested in additional on-line advertising." pages.ebay.com Breaking down the expenses on a revenue percentage basis, you get the following (courtesy of Sweetpete1 on the StocksInternet Club board at YHOO): (qtr ended March 2000 vs March 1999) Sales and marketing=40% vs 40% Product Development=13% vs 5% General and Administrative=18% vs 18* Amortization of intangibles=0.3% vs 0.7% Payroll taxes on options=1% vs 0% clubs.yahoo.com "Product Development" could mean lots of things, but I think that's where they dumped all of the expenses from upgrading the infrastructure to keep the site running. The result: the site is running and the profit is gone. Toss in some money for the lawyers <g> and the employee option payroll taxes (which will remain a significant expense as long as the stock remains high) and -- guess what? -- no profit from operations. Since one of the justifications for "investing" in EBAY as a "blue chip" Inut has been that at least it (like YHOO) turns a profit, I think investors are not going to like this at all once it sinks in. It's exactly the kind of thing that makes perfect fodder for a Barron's cover story some nice summer Saturday morning. MAD DOG