Net auctioneers lock horns in supremacy battle
Bet on the future: Brand-name recognition crucial for success
Ian Karleff
Financial Post
Half the battle of shopping on the Internet is finding a site that is trustworthy, unique in its offerings, and memorable enough at least to warrant a bookmark.
Investing in an auction site is as simple as assessing which one will still be alive once the hype is gone.
The proliferation of online auctioneers over the past 18 months has been incredible, ranging from Web sites that offer little more than online garage sales, to electronics clearing houses, to showrooms for oddball collector items, to major art and antique sales.
Investors are placing valuations on the publicly traded stocks of these sites that in most cases have nothing to do with fundamentals and everything to do with future potential.
Of the six publicly traded Internet auctioneers -- Cyberian Outpost Inc., Onsale Inc., Egghead.com Inc., Ubid Inc., Bid.Com International Inc., Amazon.com Inc. and eBay Inc. -- investors are applying revenue multiples from as little as two times to a massive 533 times. (Revenue multiple is calculated by taking the current stock price and dividing it by the total number of outstanding shares divided by annualized revenue.)
What is becoming increasingly apparent is that brand-name recognition will be crucial for success, and the underlying factor for today's stock valuations.
"We think the indirect benefit to brands will be the increased discrimination by consumers due to the 'clutter' that accompanies too much choice," said Mark Miller, an analyst at Merrill Lynch & Co. in a research report.
EBay holds the highest stock market valuation, as well as having a gross margin of 85%, which is comparable to traditional auction houses.
It also has enjoyed a considerable amount of media attention and is arguably the best known of online auctioneers, next to bookseller Amazon.com and Web portal firm Yahoo! Inc., with its Yahoo auctions, according to analysts.
Earlier this week, eBay acquired Butterfield & Butterfield for $260-million (US), on the eve of the fine art, antiques and collectible dealer's public debut.
Mr. Miller said the Butterfield purchase "highlights the strategic value of a traditional auctioneer to an online company."
At the other end of the spectrum is what Mark Pavan, an analyst at Yorkton Securities Inc., calls direct sales companies -- Bid.Com, Egghead, Onsale, and Cyberian Outpost.
"Direct sales companies are currently not profitable and competition is intensifying," said Mr. Pavan in a recent research report.
His controversial report, which stated Bid.Com's implied valuation was 10% of its current stock price, was predicated on the firm's declining stock price to revenue multiple, which is less than half what it was in January.
Also, Onsale is selling goods at cost and is waiving all administrative and shipping charges in an attempt to attract more traffic to its site and crush its competitors.
"In a zero-margin environment, only those competitors with sufficient critical mass and economies of scale will prevail," says Mr. Pavan.
His assessment of direct sales auction companies is similar to what Adam Adamou, an analyst at Taurus Capital Markets Ltd., was saying in November when Bid.Com was trading at $4.56 a share.
His report said "sell and sell again", primarily because Bid.Com's gross margin was 2%, compared with 11% at Onsale and 87.7% at eBay.
Major analysts have pegged eBay as the reigning champ of online auctions, and eight of 11 analysts surveyed expect its stock price to go higher.
Still, eBay's current price-earnings multiple is a whopping 996. This is extremely expensive when compared with Sotheby's Holdings Inc., which has a 235-year reputation of holding legitimate art, antique, and luxury real estate auctions and is planning a Web site of its own. Sotheby's stock trades at 53 times earnings and five times sales per share.
For investors who are not convinced branding is important take the recent example of a 13-year-old boy who bought antique furniture, a Van Gogh sketch and a 1971 Corvette in an eBay auction, without the means to pay the $3.2-million bill.
The credibility of both buyers and sellers is so crucial to an online auctioneer's reputation -- especially when expensive products are concerned -- that eBay quickly moved to take steps to ensure there would be no public relations disaster.
Credibility also is the foundation for Ritchie Bros. Auctioneers Inc. , which has a 35-year history in industrial equipment auctions.
The company's stock is relatively cheap at 23 times earnings, probably because the firm has been too frank about its Web site's potential only to steer customers to its next live auction.
ONLINE AUCTIONEERS -- HOW THEY STACK UP
52 week ($US) Shares (mil.) Current ($US) Gross trading range outstanding stock price price/sales Margin What they sell Onsale Inc.
Onsale Inc. (ONSL/NASDAQ)
10Þ to108
19.6 27® 2.3 10.6%
Wholesaler of computer equipment and auctioneer of electronics.
Egghead.com (EGGS/NASDAQ)
4Þ to 40Û
29.8 14ß 2.43 12.2%
Liquidators of surplus electronic equipment.
UBid Inc. (UBID/NASDAQ)
30 to 189
9.1 625/16 11.8 8.2%
Auctions electronics, signatured sporting goods and has exclusive rights to sell D.G jewellry.
Bid.com (BII/TSE)
56¢ to 33.65 (Cdn)
38.9 28.50 151.4 -9.2% (Cdn)
Holds Dutch auctions for Canadians & U.S customers plus exclusive deal with Chapters.
Amazon.com (AMZN/NASDAQ)
1255/64 to 221Û
161 205à 54.4 22%
Books, music, person to person auction site.
eBbay Inc. (EBAY/NASDAQ)
827/64 to 234
125 209Û 533.4 85.5%
Person to person auction site for memorabillia, art, and antiques.
Sothebys Holdings (BID/NYSE)
15 to 47
40.4 42Ü 5.4 82.9%
Worldwide auctioneer of fine art, real estate and collections.
Ritchie Bros (RBA/NYSE)
20 to 39Ý
16.6 35 6.1 80.7%
Industrial equipment at 50 worldwide locations
Cyberian Outpost (COOL/NASDAQ)
515/16
22.5 15Þ 1.23 9.5%
Auctions computers and accessories.
nationalpost.com
W |
