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

To: Derald Muniz who wrote (15)	8/23/1998 12:54:00 AM
From: Doug Fowler	Read Replies (1) \| Respond to of 7772

I would say that eBay's model is FAR superior to OnSale's model. Here's why: 1. Onsale has to carry a lot of inventory. This carries a big cost, and you know they have to deal with at least some returns. eBay carries NO inventory, and thus does not have the costs associated with doing so. 2. At any point in time, eBay has 600,000 auctions going on, and they get a listing fee and commission on each one that sells successfully. I haven't counted Onsale's number of auctions, but I would be surprised if it was a few thousand a day. Yes, Onsale does allow person to person auctions, but that number isn't very high. I would be surprised if it totalled 10,000 a day. 3. You can buy almost anything on eBay. Onsale is primarily about computers. So, you have many more reasons to want to go eBay if you're in the mood to buy. Likewise, as a seller, there is so much more traffic on eBay, that it makes the most sense to sell your items where you will have a steady flow of potential customers. 4. Onsale has yet to turn a profit. eBay has been profitable for the past year. In fact, I think they claim to have been profitable since day 1. Until OnSale is profitable, their growth rate will be pretty meaningless to me. 5. It is true that Onsale makes more gross profit on each item it sells. It was reported at 9.2 percent for the three months ended June 30, 1998, down from 13.1 percent a year earlier. Ebay averages about a 2.5 percent commission on its sales. Onsale also probably makes an OK margin on its shipping costs, where eBay has nothing to ship, and thus makes no money on shipping. But, again, Onsale has the high carrying costs. In fact, Onsale lost $4M in its latest quarter, on sales of $58M. Also, with $14.9M in sales in the first half of 1998, and an expected $40M for all of 1998, eBay's gross margins are already better than Onsale's gross margins. 6. Onsale currently has a market cap of $500M. eBay is expected to have a market cap around $600M at the IPO price, but it may very well double on the first day. In my opinion, the market cap of Onsale and the expected market cap of eBay will both be way too high. But in relative terms, eBay will be a far better value. 7. Onsale revenues were up only about 16 percent in the quarter ended June 30 versus the quarter ended March 31. Ebay has been growing around 50 percent in each successive (sequential) 3 month period. *** There are probably many more good comparisons to be made.... --Doug