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 (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.