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QXL.com rockets on lofty price target, eBay comparison

Shares of UK-based auction house QXL.com (Nasdaq: QXLC) soared Thursday after SG Cowen gave the company a "strong buy" rating, and slapped a two-year, $333 price target on the stock.

Shares soared 49 3/16 to 71 1/2, or 220 percent at 10:30 a.m. EDT. Shares moved as high as 340 percent, possibly because of confusion over SG Cowen's price target. SG Cowen, which has an underwriting relationship with QXL.com, issued a report giving the stock a price target of $1,000 a share pre-split, per American Depository Share (ADS).

Accounting for QXL.com's 3-for-1 stock split effective today, the price target is $333.

As Europe's answer to eBay (Nasdaq: EBAY), QXL.com offers consumer-to-consumer auctions and business-to-consumer auctions. QXL.com launched its service in the UK and has expanded into Denmark, France, Germany, Italy, the Netherlands, Norway, and Spain.

In an interview with ZDII, SG Cowen Tom Bock said he based his stock target on the theory that QXL.com could grow into eBay's current market capitalization, roughly $25 billion when he penned his report.

"It has a two year price target because that's about how far behind Europe is compared to the U.S.," said Bock, who added 14 percent of European households are online compared with 43 percent in the U.S. Europe also as two-and-a-half times the population of the U.S.

Strong growth prospects

In a report, Bock wrote QXL.com has "a unique combination of large potential market opportunity, defensibility, first-mover advantage, and attractive business model."

QXL.com is expected to grow as online usage in Europe increases. Europe is a relatively nascent, but rapidly expanding market. Further Pan-European expansion, better monetization of consumer-to-consumer auctions, business-to-business services and products, and wireless offerings will fuel the company's growth.

"With a growth rate of consumer users and e-commerce spending ($48 billion in 2002 according to IDC growing at a 125% CAGR) that should exceed that of the US market over the next few years, we believe that QXL.com is the best positioned auction site in Europe," wrote Bock.

Although QXL.com could face competition from the likes of eBay, Amazon.com (Nasdaq: AMZN), Yahoo! Inc. (Nasdaq: YHOO) CMGI's (Nasdaq: CMGI) uBid and Egghead.com (Nasdaq: EGGS), QXL.com's knowledge of the European market should help it maintain its dominant position.

Worth as much as eBay?

Bock's analysis hinges on QXL.com becoming the next eBay.

"In the December 1997 quarter, eBay generated as much in revenues as QXL.com did in the December 1999 quarter, though we believe QXL is at a disadvantage in that a smaller percentage of the European population is online now than in the U.S. two years ago," wrote Bock.

"Currently, the market values the leading, though certainly not the only, player in the U.S. auction market at approximately $25 billion," he wrote. "And though eBay has started expanding in Europe, we believe eBay's valuation is mostly a reflection on its position in the U.S. market, as investors have realised the enormous potential of the dynamic pricing platform."

Simply put, Bock figures there's no reason why QXL.com can't become the next eBay.

Surely, no one would have predicted eBay would have become a $25 billion company.

"If QXL.com does hold on to its leading position in the space and on the longer term successfully expands beyond Europe, then we believe due to the size of the potential market, QXL.com could actually achieve valuations in excess of $25 billion," said Bock.


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