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Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: IceShark who wrote (9809)	10/29/1998 4:01:00 PM
From: MythMan	Respond to of 86076

yep, should never have gotten off the wagon -nfg-

To: IceShark who wrote (9809)	10/29/1998 10:00:00 PM
From: MythMan	Respond to of 86076

>>eBAY Inc (EBAY):Recent hot IPO eBAY went public at $18 on September 24th and saw its stock open at $53 1/2, giving it a market cap of $2 billion. The stock has cooled off over the past week, and now trades at $40 a share (a figure that some brokerage firm analysts consider a bargain). EBAY runs person to person online auctions and receives a small placement fee and commissions from sellers and buyers. To the uninitiated, this is similar to the fees newspapers receive for running classified ads. As in the classified ad business, eBAY doesn't have to buy or store the items being sold. Thus it has none of the costs associated with carrying an inventory and is able to achieve very high gross margins. However, there are risks involved. Just as the potential exists for fraud in the print classified business, it exists in the online person to person auction business. It is estimated that fraud occurs in 1% to 2% of all transactions. This presents potential legal liabilities for a company like EBAY. The company itself stated that "there can be no assurance ... that it will successfully avoid civil or criminal liability for unlawful activities carried out by users through the company's service." EBAY has put some safeguards in place to try to protect against fraud, but some legal experts believe that by attempting to protect users, a company like EBAY is actually implying that it has a responsibility to protect users, thus opening it up to lawsuits when these safeguards fail. EBAY itself has had a problem collecting from its users. The company's accounts receivables were over 28% of sales in the first half of this year. It believes that $1 million of this amount is uncollectable (approximately 6% of first half sales). Besides the risks from potential fraud, the company also faces competition from Yahoo and Excite which have both started person to person auctions. EBAY's IPO success was largely attributable to it being one of the few profitable internet companies, but the company has warned that it may need to incur losses as it mounts a large advertising and promotion campaign in a bid to maintain a high level of revenue growth. Current estimates are that EBAY will have revenues of $37 million this year and $76 million next year . Operating profits are estimated to be $4.8 million this year and $6.2 million next year. Based on these figures the company's current market cap is 21 times next year's estimated sales. To justify these valuation levels, the company would have to be on the verge of becoming the next Home Depot (which we do not see happening). In our view, the person to person auction business, like its print cousin the classified ad, is a niche business that is never going to become a dominant form of exchange of goods. When these shares are available to short, we would be shorters. Six months from now we look for these shares to be trading below their IPO price of $18. << conclusion...short it <g>