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To: 10K a day who wrote (129334)	7/30/2001 5:28:44 PM
From: H James Morris	Read Replies (3) \| Respond to of 164684

Dude, I have no interest in eBay because its too expensive for me. I wouldn't short it either. Trust me. >The Silly Season eBay trades at 140 times forecast 2001 earnings. Let's crunch some more numbers to see why that's unsustainable. The company says it expects to make revenue of $3 billion in 2005. Analysts reckon eBay can make $1.01 billion in revenue in 2002, a 41% increase on the expected number of $718 million for 2001. For revenue to reach $3 billion in 2005, it has to grow at an average rate of 44% in 2003 through 2005. Note the flawed assumption here. Revenue has to grow faster in the 2003-05 period than it does over the next 12 months or so. People are repeating one of the biggest analytical mistakes of the tech bubble: They believe that torrid growth rates can go on for many years -- and even accelerate from early stage rates. eBay aims to have a 35% operating margin in 2005. That'd give pretax profits of $1.1 billion in that year. Using the company's current tax rate of 42%, net income would be $610 million in 2005. If that's discounted back using a 10% discount rate, eBay's 2005 earnings are worth $378 million today, or $1.36 a share. In other words, eBay's trading at 47 times discounted 2005 earnings. No bargain. This exercise shows that even the sainted eBay eventually will fall. Fundamentals always prevail. Unlike in life, the underlying truth -- in this case, companies' real health -- eventually wields its power. In markets, this truth asserts an economic justice that sets prices close to appropriate levels. Investors are slowly gaining the courage to really look at what they own. Reality is creeping over this market subtly as a summer mist, but as inexorably as a glacier. Don't get crushed.