One test of a company’s business model and executive management is how well it performs during bad times. Using that reasonable standard, eBay has consistently earned an A-plus during the current economic downturn.
The online auction market leader’s latest quarterly report card, delivered after the market’s close on Thursday, was nothing short of stellar.
eBay’s net income in the first quarter increased to $21.1 million, or 8 cents per share, from $1.76 million, or 1 cent per share, in Q1 2000. Revenues were up 79.6% to $154.1 million from $85.8 million a year ago. Analysts had expected sales of about $149 million.
Excluding stock-based compensation and other costs, eBay posted a profit of $30.6 million, or 11 cents per share, topping EPS estimates of 8 cents.
Even better, and rare in a period when nearly every other Internet and tech company is lowering guidance, eBay issued a bullish forecast for the next two quarters, telling investors that revenues may exceed Wall Street forecasts of $157.7 in Q2 and $166.73 million in Q3.
Shares of eBay gained 9.3% Thursday in anticipation of its Q1 report, closing at $49.99. The stock climbed as high as $53.85 in after-hours trading. Since closing on April 4 at $30.38, EBAY has gained 64.5% through Thursday’s final bell. In the year-to-date, eBay is up 51.5%, tops among all major ‘Net players.
Gross margins continue to climb, reaching 82% from 73% in last year’s first quarter. eBay executives said the company’s gross margin should stay above 80% for the remainder of 2001.
Despite raising its listing fee to 15% from 10%, the number of items listed on eBay increased to 89 million from 53.6 million a year ago, a 66% jump. The total value of items sold on eBay in Q1 was $1.98 billion, 72% more than the $1.15 billion in last year’s first quarter and 23% more than the $1.62 billion in last year’s Q4.
Some of eBay’s increased usage is due to the company’s continued international expansion. Of the 7.2 million new customers in the first quarter, 3.2 million came from Internet Auction Co., a South Korean online auction site. eBay acquired a majority interest in that company in February.
But another big reason the current downturn hasn’t resulted in less activity on eBay is that many of its sellers are small businesses trying to cope with the same problem that has devastated so many large high-tech product manufacturers in recent months — excess inventory. Small-business owners — whether they sell antiques, guitars, collectibles, etc. — have found they can move merchandise, usually above cost. Even larger companies are liquidating some of their inventory through eBay.
With its current market capitalization of $13.5 billion, eBay is valued at 27x trailing 12 months’ revenue of $499 million, only slightly more attractive than its valuation in late January, when I said shares were still pricey. On an earnings basis, eBay is valued at 166x TTM net income of $81.3 million, better than the 232x TTM net income three months ago.
Should the market’s current rally fizzle as the economy continues to slump, eBay’s price likely will come down with other stocks. It’s worth waiting for a better entry point.
