COMMENTARY--No one would call eBay a forgotten company, but it seemed like one at this technology conference.
Organizers of this year's J.P. Morgan H&Q technology conference in San Francisco put eBay (Nasdaq: EBAY) in the largest presentation room, but they needn't have bothered. Far less than half the seats were occupied, and some of the people who did bother showing up seemed to be there because it happened to have the seats closest to the breakfast room.
The lack of interest particularly stood out compared to the preceding session with i2 Technologies (Nasdaq: ITWO), which filled most of the seats in the same room, despite having the earliest starting time. The contrast looks even more remarkable when you consider the companies' opposing fortunes in recent quarters.
As i2 (and almost every other presenter at the conference) suffers from the economic downturn, eBay plugs along virtually untouched. eBay Chief Financial Officer Rajiv Dutta said his organization changes constantly ("Every six months, it's a new company"), but eBay remains one of the only companies that can give the same kind of speech as a year ago. The goal of the business remains the same, just with newer products or markets, such as automobiles.
You could say eBay's investment picture offers nothing new, which could be why so few bothered to listen to Dutta. But a better way of putting it is that eBay offers the closest thing to a harbor in the Internet industry.
After all, the company continues to hit estimates, operating margins are continually improving, the market is as huge as ever, and still mostly untapped. And although Dutta touted the growth of "practical" items and automobiles as percentages of eBay's revenue, the reality is that the nature of what is sold on the company's auction model--mostly used, surplus or other so-called "distressed" goods--helps insulate eBay from the economic downturn.
Perhaps that's why eBay has outperformed the Nasdaq composite index in recent months:
Meanwhile, shares of i2 plunged as companies throttled their technology spending near the end of the first quarter. No one expects things to get much better until year's end. "I'm not trying to give a negative picture here, but I'm trying to give a cautious financial picture," said Bill Beecher, CFO.
i2 certainly isn't going to disappear. There's a good chance its software products will gain share in their markets while the technology recession continues. In some cases, ailing companies may even add to i2's sales, Lancaster said, citing a recent contract win with Lucent Technologies (NYSE: LU), as an example.
Lucent's widely reported string of financial miscues convinced executives to look for ways to cut costs quickly--exactly the sort of thing enterprise software companies like i2, Oracle (Nasdaq: ORCL) and Ariba (Nasdaq: ARBA) claim to do. "When Lucent got into their issues, the need for them to use our software became more compelling, not less compelling," Lancaster said. "Software does sell in challenging times, as well as good times."
That kind of pitch always gets Wall Street salivating. Financial folks glom onto any technology that saves money and pays for itself quickly.
Yet the reality is that more companies will delay installing expensive software that changes their business processes. Corporations will wait for their own business to turnaround before putting money back into new technology.
That's not the fault of i2, which should be just fine once the downturn passes.
Meanwhile, eBay and its comparatively conservative long-term picture of only "modest" growth in the company's overall market provide a more solid haven for now. Maybe it's not exciting for techies. As Dutta said, "It is not cutting-edge technology. It is not brand new stuff. It is about architecting (current technology) artfully for the future." And at a market capitalization of $14 billion and change, the company still looks frightfully expensive from a value investor's point of view.
But eBay has never veered from its plan, not even with the rest of its dot-com peers withering away. Unlike most other tech-related companies at the moment, there's no reason to doubt eBay will reach its ultimate goals. That alone deserves at least some consideration from Wall Street. 22GO>