eBay races against rising expectations

The company reported first-quarter results that matched Wall Street estimates. Pro forma earnings, excluding unusual costs, totaled $30.6 million or 11 cents per share, breezing past analysts' estimates for 8 cents to 9 cents per share. Revenue rose to $154.1 million from $85.9 million a year ago. More importantly, eBay boosted its revenue forecast for the rest of the year, saying the economic downturn had not slowed its rate of growth.

With the first-quarter results, eBay solidified its position as one of the few Internet companies still living up to its initial hype. Yahoo, which at one point was worth more than Disney, has fallen off its perch because of an online advertising slowdown. Amazon.com, which was originally thought to be a competitor to Wal-Mart, is still trying to turn its first profit. Meanwhile, eBay keeps delivering strong growth as it diversifies its business.

Investors are well aware of eBay's success and have rewarded shares accordingly. The stock has jumped 50 percent during the past two weeks and shares rose another $2.06, or 4 percent, to $52.05 on Friday. But like other companies that have become Wall Street darlings, analysts keep raising the bar.

Prudential Securities analyst Mark Rowen maintained a "strong buy" on the stock and called it the "ultimate survivor," having proven it can thrive in an economic downturn.

The company's gross merchandise sales surged to $1.98 billion, 72 percent above last year's figure and well above most analysts' expectations.

The books, music and videos category increased 20 percent sequentially, and eBay Motors, which accounted for almost 13 percent of total sales for the quarter, jumped 40 percent. The numbers were just the evidence that analysts were looking for to prove that eBay is moving away from the narrow appeal of collectibles and becoming a mass merchandise marketplace.

The company's fixed-price trading platform, Half.com, was also cited for fueling growth in the quarter. Since launching in January 2000, the site has rocketed to the 15th most popular shopping destination and has amassed a loyal and active customer base.

Robertson Stephens analyst Lauren Cooks Levitan called the site "eBay's silver bullet" and noted that the past week's addition of four new categories--consumer electronics, computer equipment, sporting goods, and trading cards--should "convert to meaningful revenue for eBay in the near term."

Although eBay impressed analysts with the developments at Half.com and its other efforts, some were not impressed.

The company's quarter did not have "good enough news to justify the price," Lehman Brothers analyst Holly Becker said in her research note. Becker maintained her "market perform" rating and maintained earnings estimates while raising revenue numbers for 2001.

At $14 billion market capitalization, or 136 times its 2001 earnings per share, "the risk-reward ratio on the stock is unfavorable," wrote Becker, who added that eBay lifted its revenue targets but left its earnings projections unchanged. The analyst also observed that "newer initiatives may struggle to take off and continue to hold back profitability."

Prudential's Rowen said the concerns about eBay's valuation will subside as long as the company continues to deliver. He estimated earnings-per-share growth of 81 percent in 2001 and 105 percent in 2002. Rowen justified eBay's stock price based on 2002 estimates and called the stock his "single best idea," reiterating a $75 price target.

J.P. Morgan analyst Steve Fitzgibbons was also bullish on the stock, reiterating his "long-term buy" rating. But he noted that "the stock is not cheap in the near term" and recommended "aggressively buying the stock below $35."