eBay Goes Hollywood

It is one of the few Internet companies that has become synonymous with the market it dominates. That is, almost no one merely mentions “online auctions.” Instead, they talk specifically about eBay .

Now eBay is shrewdly leveraging its superior brand awareness to develop revenue streams that will run through the capital of “old media”: Hollywood.

The Internet auction leader is negotiating with several major television networks to air a show revolving around “some form of auction-style bidding,” Inside.com reports. eBay even has engaged the quintessential showbiz talent agency – William Morris – to help create a winning program.

And on Monday, Walt Disney Internet Group turned on the switch to a new site that links users to auctions on eBay. Disney is offering 90,000 separate items for sale to the top bidders. Already there are 17 bids for the witch’s outfit worn by Bette Midler in the movie “Hocus Pocus,” with the high submission reaching $1,009 (though the reserve hasn’t been met yet).

The four-year partnership with eBay sure is a great way for Disney to empty its warehouses of dusty movie memorabilia and promotional merchandise, but more significantly, it underscores the unique power eBay has as the leading online auction site.

Disney’s Go Network actually launched its own auction site in October ’99, but abandoned the solo effort when the eBay deal was announced last February. (Go and eBay unveiled a joint site in May.) Disney also plans to have eBay host auctions for its other online properties, ABC.com and ESPN.com.

Why not go it alone and keep all the proceeds? Because, like any seller of goods, Disney wants to find the largest number of potential buyers, the largest bazaar. And when it comes to Internet auctions, eBay is downtown Manhattan, while everybody else is the local strip mall.

The auction-style network television show in the works could be the ideal interactive program uniting the two most powerful mediums in the world. Until now, most interactive efforts involving TV and the Internet revolve around less-than-compelling features such as instant polling. Auctions will get the money flowing – which, after all, is the goal of e-commerce.

These and other recent similar moves (such as an agreement to host auctions for the National Football League) should reassure investors concerned about eBay’s depressed stock price that the company is working hard to avoid its one potential Achilles’ heel: complacency. As long as the company isn’t lulled into sitting on its 70%-80% market share, its position as the leading online auction site should remain unassailable.

Given that position of strength and consistent profitability, eBay is a company worth looking at, even though shares are still pricey. Trading at $53 early Tuesday afternoon, EBAY has a market cap of $14.2 billion, giving it a valuation of 45x trailing 12 months revenue of $315.6 million. However, if eBay can reach $115 in revenues for Q3 – just an 18% increase over the year-ago quarter – its valuation at the current stock price drops to 38x TTM revenues.

eBay should be announcing Q3 numbers next week. If recent market trends hold up, shares could drop if the company only meets or barely beats earnings estimates of 4 cents per share. Then investors could be looking at a better deal than Bette Midler’s witch dress.

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