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Shares Down, But eBay Remains A 'Net Powerhouse

Last week, in one of the more creative misuses of leading online trading community eBay , a presumably unauthorized seller put the U.S. presidency on the auction block, promising that the "high bidder will be flown in to Washington, D.C., to prepare for inauguration ceremonies and prepped for presidential duty."

After just a few hours and a $100 million leading bid, eBay pulled the plug on the deal.

Now a Lehman Brothers analyst has pulled the plug on eBay's stock with a report that questions whether the Web auction giant can meet its aggressive revenue growth targets and downgrades shares to "neutral" from "buy."

Investors immediately took the cue, sending eBay shares down 19% on Monday to $34.50, the stock's lowest closing price in nearly two years. By late Tuesday afternoon, EBAY was down to $31.31 and headed for another new low for the year.

The market must have a short memory, because it seems like just yesterday (actually, it was Oct. 20) that investors were pushing eBay shares up over 12% in one day after the company, profitable in each quarter since 1997, reported stellar revenue growth and beat-the-street earnings for Q3.

Lehman expressed doubts that eBay could maintain the 50% annual growth needed to achieve its stated goal of $3 billion in yearly revenue by 2005, but third-quarter numbers, at least, show a 97% increase over the year-ago quarter to sales of $97.4 million. And eBay's revenues of $296.6 million in the first three quarters of the fiscal year, likewise, are 97% more than the $150.8 million in last year's first three quarters.

While Lehman cites a slowing of eBay's core business the auctioning of collectible items as a source of concern, bottom-line revenue growth still looks pretty strong to me. And eBay continues to explore new revenue streams. In fact, on Monday the company launched a plan to offer other Web sites its proprietary auction technology. The goal of its application programming interface and developers program is to eventually transform eBay's technology into the standard operating system for Internet auctions.

While the Wall Street analyst community often is herdlike, Prudential Securities responded to Lehman's downgrading by reiterating a "strong buy" on eBay, calling Monday's selloff an overreaction. I agree, and I see an opportunity for investors to buy a blue-chip Internet stock at the best price since January 1999.



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