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The Exuberant Bidder: eBay Shares Soar 46% On Auction Fever

Never underestimate the power of a garage sale on steroids or the underwriter of your IPO to boost attention. Back in July, we first profiled personal auctioneer eBay and said it was as close to a pure commerce site as so far seen on the Internet and "the best of breed longer term" of any IPOs this year. Yesterday Wall Street finally agreed, with a little help from DLJ, one of EBAY's IPO underwriters.

  eBay Onsale ONSL %
  EBAY ONSL of EBAY
Shares out 39.7 18.9 48%
Price per share 73.4 18.5 25%
Market cap $ 2,913.0 $ 349.7 12%
in millions, except share price

eBay (NASDAQ:EBAY) shares zoomed 46% to $73.375 per share on a tout from the investment bank and a rush of investor adrenaline, scores of retail and institutional buyers looking for bang for the buck after missing out on Yahoo, Amazon and the early Netscape.

Refresher on eBay: People come to buy and sell there, person to person, mano a mano. It's a glorified garage sale meets Sotheby's auction with artwork and Beanie Babies clamoring side-by-side for its 1 million users' attention and wallet-span.

The mad dash for shares was triggered by DLJ, which put a 12-month price per share target of $100 on the stock that just had its IPO a month ago. On September 24, ebay (NASDAQ:EBAY) went public at $18 with 3.5 million shares sold, raising more than $63 million. On that day, in the middle of a bear-scare in effect for Internet IPOs in general, eBay shares opened at $53.50, peaked at $54.25 and closed at $47.375 per share in one of the best Internet IPOs this year.

Fueling the liftoff: simplicity and e-commerce.

While eBay went ballistic on euphoric comments about global marketplace for garage sales, it's important to remember that not all of the world's garage sale homes (which can be any home on any weekend) have Internet access or PCs; not all of the U.S. homes with garage sales use eBay; not all of Silicon Valley's wired homes with garage sale tendencies use eBay.

On the plus side, eBay boasts more than 1 million users and hundreds of thousands of items across many categories, and it seems to have critical mass-to-scale to Internet-enabled heights like few other Web examples so far. Even Amazon.com (NASDAQ:AMZN) is more top-down retail than eBay, which is bottom-up, people-to-people. The more the Web and individuals control the commerce, the more commerce occurs in our view. "Decentralized" commerce wins for the same reason that the Internet itself grows organically rather than chronologically.

Meanwhile, an auctioneer of a different flavor, Onsale (NASDAQ:ONSL) hasn't received the kind of zeal that eBay enjoys. Onsale, which makes a market for sellers with excess inventories, refurbished items, and an increasingly growing list of goods including cars, trades at 12% of eBay on primary share basis. Fully-diluted eBay market cap is nearly $4 billion.

On a revenue multiple primary-share basis, we think eBay trades north of 60x our estimate of its 1998 revenue and about 35x next year's estimated revenue.

Onsale, on the other hand, which recorded its 8-millionth bid recently, could produce revenues of $200 million this year and perhaps $300 million next. If so, ONSL trades at about 1x to 2x revenue. A few weeks ago it launched a rival personal auction service in conjunction with Yahoo, all free. eBay enjoys the lead in personal auctions, but Onsale leads in retail auctions. Time will tell if all bidders are not created more equal.