RealTime IT News

Ebay's Southern Ride

For the first time since late February, shares of online auction giant eBay fell below $100 Tuesday morning, just one day after the online auction company reported a 70 percent drop in profits during a quarter marred by several serious technical outages.

But it's hard to argue that the market is punishing eBay for the disappointing report, since EBAY shares have been on a grim march south since closing at $215 on April 29.

Granted, for several weeks eBay had a lot of company in its rapid journey down the charts, but many other Internet leaders bottomed out by June and have since regained much of their losses. (RealNetworks, for example, closed at a split-adjusted high of $110.75 on April 30. By June 14 it had plunged to $52.50. It rallied, however, and as of Tuesday afternoon, RNWK shares were trading at $85.)

The irony is that virtually every other Internet company would trigger a run-up if it reported any quarterly earnings at all, never mind the $816,000 eBay had in Q2, for profits still are rare in cyberspace.

eBay would have reported more than $4.7 million in earnings if it hadn't had to give users $3.9 million in credit as compensation for a one-day service outage in June that prevented any bidding. That was the most serious interruption of service (and thus revenue). There were many others, and a number of irate customers expressed their displeasure in chat rooms and newsgroups.

However, judging by figures announced Monday, eBay customers are forgiving. The number of registered users increased from 3.8 million in Q1 to 5.6 million in the second quarter, an impressive 48% growth rate over three months.

No doubt this is due in great measure to the strength of eBay's brand. It also is the favorable result of eBay's sheer size, for grumble though they will about the inconsistent hours, eBay customers -- both buyers and sellers -- feel the site is the biggest and best bazaar online. When your goal is to move merchandise or find the best selection and price, you're willing to forgive some inconvenient store hours.

Investors, though, may see eBay's persistent technical woes as potentially fatal flaw. For while eBay is the runaway leader in the online auction space, with a mindshare exceeded only by household names such as AOL and Amazon.com, it has dozens of competitors nipping at its heels, including online bookseller Amazon.com, which announced in Q2 that it would enter the auction business.

eBay has to move quickly to allay concerns that technology problems will limit revenue growth long-term. Until it does, shares of EBAY will have difficulty regaining the altitude they enjoyed in the spring.