For most of this month, while most other Internet stocks were nosediving, shares of online auction giant eBay
hung tough, staying just under $50 through the long Presidents’ Day weekend.
Things began unraveling early last week, and on Friday eBay threatened to give back most of its gains from January, when shares rose 49.6%. After nearly falling below $40, eBay rallied to finish at $44.44, a loss of only 2.7%.
The catalyst for EBAY’s stumble was news that Internet auction leader would buy Paris-based IBazar Group SA, one of Europe’s largest online auction sites, for $103 million. Though the acquisition was favorably received by analysts – WR Hambrecht reiterated a “strong buy” rating – the market clearly had qualms about its short-term impact on the bottom line, as eBay officials said the deal would lower net income per share by 4 cents for the full fiscal year.
The move was the latest, and most significant, in eBay’s quest to expand its already strong international presence. iBazar, launched in October 1998, runs the top person-to-person trading communities in Belgium, Brazil, France, Italy, the Netherlands, Portugal and Spain, and is No. 2 in Sweden.
Clearly eBay isn’t buying just another horse in these races. eBay, which already owns the online auction markets in the United States, the United Kingdom, Germany, Canada, Korea and Australia, intends to be the leader in every place it competes.
Here’s some more perspective on the significance of the iBazar acquisition: eBay’s stated goal in recent months has been to compete in 10 international markets by year’s end. The iBazar purchase makes eBay the top Internet auction site in a dozen countries worldwide, and it’s still the first quarter.
The significance of this cannot be understated. eBay is one of the few Internet companies that has made first-mover advantage pay off. Much of that is due to the dynamics of the online auction market. Both buyers and sellers will congregate to the site with the largest amount of traffic because it increases their chances of success. Everything else being equal, they have no reason to switch their activities to a smaller auction site.
By understanding and capitalizing on this phenomenon, eBay has grabbed more than 70% of the online auction market in the U.S. It now is in position to do the same in Europe, which is expected to have a much higher growth rate than the U.S. Internet auction market over the next few years.
Beyond that, eBay plans to compete in 25 international markets by 2005. Look for the company to reach that number early, and look for it to do much more than compete in each country. eBay wants to win, and has developed a provable model for success. Not many Internet companies can make that claim.