Editorials

SAN FRANCISCO — The stock of online auctioneer eBay Inc. plummeted by more than 20 percent Monday after a Wall Street analyst raised doubts about the company’s ambitious growth goals. 

The selloff, which wiped out $2.4 billion in shareholder wealth, illustrated investors’ increasing disillusionment with e-commerce stocks that enthralled them less than a year ago. 

Lehman Brothers analyst Holly Becker triggered Monday’s downturn by lowering her rating on eBay’s shares from a “buy” to a “neutral” after concluding the San Jose-based company’s collectibles business has peaked. 

Because she doesn’t believe eBay will be successful in its effort to list mass merchandise items, Becker doubts the company will be able to sustain the robust growth needed to deliver on management’s promise for $3 billion in annual revenues in 2005. 

EBay’s revenue this year is expected to range between $400 million and $450 million. As one of the world’s few profitable online businesses, eBay make its money by charging listing fees and commissions on auction sales on its site. 

“We are concerned that the company’s core business is slowing and that newer initiatives will take time and more money to build out” than previously estimated, Becker wrote in a three-page report. 

Becker’s bearish remarks rattled investors accustomed to seeing eBay’s revenues double from one quarter to the next as more people sell goods on the site. EBay’s shares dropped $8.94 on the Nasdaq Stock Market on Monday to close at $34.50. 

Investors are worried most of eBay’s users are only interested in buying and selling trendy collectible products, such as Beanie babies. 

After the market closed Monday, eBay management reiterated its belief that the company will reach $3 billion in revenue in 2005. 

“We did a lot of homework before putting out that number. We still see a very robust business for us,” said Rajib Dutta, eBay’s vice president of finance. 

Ebay expects collectibles sales to account for just 15 percent of its projected $3 billion in revenue in 2005. The company said its site already accounts for the most online sales of toys, sports equipment and jewelry. EBay is aggressively branching into other big-ticket items such as automobiles and real estate. 

ABN Amro analyst Kevin Silverman said he believes eBay’s sales projections are realistic. He expects total sales of used consumer goods nationwide to hit $517 billion in 2005. If eBay’s site handles about 9 percent of that volume, Silverman estimates eBay’s 2005 revenues will be $3.7 billion. 

Silverman and other analysts characterized the Monday meltdown in eBay’s stock as a knee-jerk reaction by investors behaving as irrationally now as they did when they assigned mind-boggling market values to e-commerce stocks. 

As recently as March, eBay’s shares traded at $125, giving the company a market value of about $35 billion. The company’s market value is now below $10 billion. 

“A year ago if somebody said anything slightly positive about a stock, it would shoot up by 20 or 30 percent in a day. Now, we’re seeing just the opposite reaction with negative comments,” said Prudential Securities analyst Mark Rowen, who maintains a buy rating on eBay. 

Rowen estimated the auction site’s auction listings in the current quarter have increased by 13 percent from the previous quarter 

In her report, Becker said she was discouraged because eBay no longer shapes up as a likely acquisition candidate for two other e-commerce bellwethers, Yahoo! Inc. and America Online Inc. 

Becker said a recent flurry of stock sales by eBay insiders also raised red flags. 

During the final week of October, eBay management and directors sold about 2.5 million shares of stock at prices ranging between $50.35 and $56.55 per share, according to Securities and Exchange Commission filings. 

Dutta said the divestitures were part of a long-standing program designed to allow eBay’s insiders to sell a set percentage of their stock each quarter so they can diversify their holdings. 

——— 

On The Net: 

http://www.ebay.com