<% ' AvantGo:MarketClose %>DJIA 8829.74 +5.92 (+0.07%) S&P 500 1118.17 -2.80 (-0.25%) Nasdaq 1851.06 -11.05 (-0.59%) Value Line ndx 878.46 -1.81 (-0.21%) 30-Year Bond 100 1/32 +18/32 5.25% Yield<% ' AvantGo:End %>
<% ' AvantGo:Heroes %>Tired of watching the same old Internet stocks rise like rockets day after day? Another company joined the fray today by sending forth an eye-catching press release advertising Internet access "50 Times Faster Than Conventional Modems." Broadband network systems company AvTel Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVCO)") else Response.Write("(Nasdaq: AVCO)") end if %> shot up $28 3/4 to $31 today after it announced the launch of its DSLink Service, now available to everyone -- in downtown Santa Barbara, California that is. Growth is on the way, however, as the service should be expanded to include such Golden State metropolises as Goleta and Carpinteria by the end of the month.
Investors who spent the first half of the week driving down the price of natural foods grocer Whole Foods Markets <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFMI)") else Response.Write("(Nasdaq: WFMI)") end if %> on worries about fiscal fourth-quarter results changed their tune today. The Austin, Texas-based company last night turned in pro forma EPS of $0.40, beating last year's $0.33 figure (excluding charges) and falling in line with market estimates. Whole Foods grew $6 13/16 to $40 1/16 on the news, ending a run of bad results that pulled the stock as much as $8 below Friday's $40 per share closing price. Executives were upbeat in a conference call today (click here for info on how to hear the replay), but also attempted to quell the recent rumors that the company was in talks to acquire competitor Wild Oats Markets <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OATS)") else Response.Write("(Nasdaq: OATS)") end if %>. For more information on Whole Foods, check out Warren Gump's "Fool on the Hill" column from Monday.
QUICK TAKES: Online services provider America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> mailed in gains of $3 5/8 to $140 3/4 after The Wall Street Journal's "Heard On the Street" column said AOL's efforts to have cable providers open their connections to other companies may prove successful even without FCC assistance... Wednesday's Internet IPO EarthWeb <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EWBX)") else Response.Write("(Nasdaq: EWBX)") end if %> continued to spread today, expanding $20 9/16 to $69 1/4 after rising 247.8% in heavy trading yesterday. EarthWeb, which provides online information and services to computer programmers, developers, and technicians, had an initial offering price of $14 per share... Several other Internet stocks also climbed today, as retailer Shopping.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IBUY)") else Response.Write("(Nasdaq: IBUY)") end if %> rose $1 to $7 and CyberShop <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYSP)") else Response.Write("(Nasdaq: CYSP)") end if %> won $1 1/2 to $13 3/8. Online transactions technology firm CyberCash <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYCH)") else Response.Write("(Nasdaq: CYCH)") end if %> added $1 3/16 to $11 3/16.
Grocer Albertson's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABS)") else Response.Write("(NYSE: ABS)") end if %> bagged a gain of $15/16 to $56 3/4 after its shareholders and those of American Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASC)") else Response.Write("(NYSE: ASC)") end if %> approved the planned merger between the companies. The deal, originally valued at about $11.7 billion, would create the nation's largest food store chain... Natural gas processor and marketer Aquila Gas Pipeline Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AQP)") else Response.Write("(NYSE: AQP)") end if %> shot up $2 3/16 to $8 11/16 following the announcement that UtiliCorp United <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCU)") else Response.Write("(NYSE: UCU)") end if %> proposed to buy back the 5.4 million Aquila common shares it doesn't own for $8 per share, about a 23% premium over yesterday's closing price. Aquila is 82% owned by Aquila Energy Corp., a UtiliCorp subsidiary... Telecommunications network capacity firm Ciena Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CIEN)") else Response.Write("(Nasdaq: CIEN)") end if %> moved ahead $1/2 to $17 7/8 after it said a unit of Britain's Cable & Wireless <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CWP)") else Response.Write("(NYSE: CWP)") end if %> placed a $16 million order for its MultiWave Sentry 4000 dense wavelength division multiplexing (DWDM) equipment.
ESS Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESST)") else Response.Write("(Nasdaq: ESST)") end if %>, which makes PC audio and digital video products, rose $2 1/2 to $6 7/8 after it introduced its ES4228 processor for Internet set-top use... Immunotherapeutic drug developer Alexion Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALXN)") else Response.Write("(Nasdaq: ALXN)") end if %> improved $2 to $13 following its announcement that a patented pig-cell transplant process has shown the ability to repair spinal cord damage in test animals... Oil and natural gas exploration and production firm Abraxas Petroleum <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXAS)") else Response.Write("(NYSE: AXAS)") end if %> gained $15/16 to close at $7 7/16 after it agreed to sell certain interests in its Wyoming natural gas fields to a unit of General Electric Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> for $60.2 million. Abraxas said it might use the proceeds for debt reduction or acquisitions.
Air-powered tool and heating product marketer P & F Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PFINA)") else Response.Write("(Nasdaq: PFINA)") end if %> rose $1/2 to $8 1/2 after it reported Q3 EPS of $0.33, compared with $0.25 (excluding discontinued operations) a year ago... Cargo air carrier and holding Atlas Air <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CGO)") else Response.Write("(NYSE: CGO)") end if %> added $2 7/6 to $36 11/16 after it announced a contract with FDX Corp.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDX)") else Response.Write("(NYSE: FDX)") end if %> Federal Express unit for the lease of three Atlas freighter aircraft. Service under the contract will begin in Q4... Hotel real estate investment trust (REIT) Patriot American Hospitality <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAH)") else Response.Write("(NYSE: PAH)") end if %> reclaimed some lost ground today, advancing $13/16 to $8 after it said it may issue new stock or bonds or combine with another company to help its financial situation. Patriot fell as much as $2 below Friday's $9 per share closing price on Monday's disappointing earnings news.
Craftsman tool maker Danaher Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DHR)") else Response.Write("(NYSE: DHR)") end if %> hammered out gains of $2 3/8 to $42 3/4 today. Danaher will be added to the Standard & Poor's 500 Index, replacing Stone Container Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STO)") else Response.Write("(NYSE: STO)") end if %>... Internet search and retrieval software provider Verity Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRTY)") else Response.Write("(Nasdaq: VRTY)") end if %> rose $4 1/16 to $15 7/16 after Soundview initiated coverage of the company at "buy"... Sheet and tile flooring manufacturer Congoleum Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CGM)") else Response.Write("(NYSE: CGM)") end if %> rose $1/2 to $9 1/8 following its announcement of Q3 EPS of $0.43 (before charges), nearly double last year's $0.22 and well above the market's $0.34 consensus estimate.<% ' AvantGo:End %>
<% ' AvantGo:Goats %>Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> fell $2 3/4 to $69 3/16 in advance of reporting third quarter earnings of $0.28 a share, compared with a split-adjusted $0.17 last year and analysts' mean estimate of $0.27. Revenue grew 51% to $4.818 billion from $3.188 billion a year ago. During the quarter, Dell surpassed the $10 million a day mark on sales made via its website, www.dell.com. The Internet now represents 20% of the PC maker's business. The company's return on invested capital was 190%, while gross margin remained flat at 22.5% and operating expenses fell slightly. What rocked Dell's shares today was some nervousness among investors ahead of the earnings report, plus Compaq Computer's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> announcement that it will start selling computers directly to customers, copying the successful Dell model.
Information technology (IT) research and consulting firm Gartner Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IT)") else Response.Write("(NYSE: IT)") end if %> -- not to be confused with the Gardner brothers of Motley Fool fame -- tumbled $2 15/16 to $18 13/16 after saying it expects 1999 revenues and per-share earnings growth in the 20% range, lower than had been anticipated. For fiscal 1998, revenues increased 26%, while EPS grew 31%. The company reported fiscal Q4 EPS of $0.23 (before charges), compared with $0.17 in the same prior-year period and the Street's mean estimate of $0.24. The company said that "customer caution in the present environment," especially in the Asia Pacific region, negatively impacted contract value in the third quarter. Separately, Gartner Group announced that IMS Health <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RX)") else Response.Write("(NYSE: RX)") end if %>, which owns a 47% stake (47.6 million shares) in the company, plans to spin off most of its equity position in a recapitalization of the IT firm. After the spinoff, IMS will hold 6.9 million shares, which it intends to sell within one year to fully focus on the drug and healthcare industries. Gartner Group's CEO said the spinoff will make the company "free at last."
Book and music retailer Borders Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BGP)") else Response.Write("(NYSE: BGP)") end if %> lost $2 9/16 to $24 11/16 after announcing a fiscal third quarter loss of $0.01 per share versus breakeven results a year ago and in line with estimates. The company added that it still expects full-year EPS of $1.22, which would represent a 25% gain over last year. A backlog at Borders' West Coast distribution center negatively impacted same-store sales, which rose just 3.6%. The number was worse at its Waldenbooks chain, where comp-store sales dipped 1.5%. The company also announced the appointment of Philip Pfeffer as its new CEO. Pfeffer was president and chief operating officer of book publishing giant Random House Inc. Before that, he was chairman and CEO of Ingram Distribution Group, the parent of Ingram Book Group, the world's biggest distributor of trade books. Borders rival Barnes and Noble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKS)") else Response.Write("(NYSE: BKS)") end if %> just said it will buy Ingram Book Group for $600 million.
QUICK CUTS: BankAmerica <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> lost $1 1/4 to $55 3/4 after the banking giant agreed to pay $187.5 million to settle a three-year-old lawsuit by the city of San Francisco and the state of California charging that the bank fraudulently mishandled municipal-bond accounts... Online music vendor K-tel International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KTEL)") else Response.Write("(Nasdaq: KTEL)") end if %> gave back $4 5/8 to $28, while rival N2K Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTKI)") else Response.Write("(Nasdaq: NTKI)") end if %> came down $1 9/16 to $10 7/8 following a surge this week on news that K-Tel Express home shopping service will be included on the Microsoft Network's shopping channel. N2k merger partner CDnow <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDNW)") else Response.Write("(Nasdaq: CDNW)") end if %> also fell $1 1/8 to $13 5/8... Internet portal and browser software company Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> slipped $1 3/16 to $27 1/8 after announcing it will acquire privately held website services firm AtWeb Inc. in exchange for 3.36 million Netscape shares. Netscape said the deal will allow it to integrate more than 600,000 websites into its Netcenter portal.
British Telecommunications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTY)") else Response.Write("(NYSE: BTY)") end if %> American depositary receipts were cut $3 7/8 to $134 7/8 after the phone company said it isn't paying a special dividend from the profit it made from selling its interest in MCI Communications as part of the acquisition by WorldCom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCOM)") else Response.Write("(Nasdaq: WCOM)") end if %>... Timberland Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBL)") else Response.Write("(NYSE: TBL)") end if %> was chopped down $1 11/16 to $43 15/16 after BT Alex. Brown downgraded its rating on the casual footwear and apparel designer to "market perform" from "buy." Maxwell Shoes <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAXS)") else Response.Write("(Nasdaq: MAXS)") end if %> was also kicked down $1 7/8 to $10 3/8 following BT Alex. Brown's rating cut to "market perform" from "strong buy"... Biotech firm Entremed <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENMD)") else Response.Write("(Nasdaq: ENMD)") end if %> was sliced $7 3/4 to $24 7/8 as the National Cancer Institute said it hasn't been able to replicate positive results on one of the company's experimental anti-cancer compounds.
Acquisitive solid-waste services company Superior Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUPR)") else Response.Write("(Nasdaq: SUPR)") end if %> was dumped for a $2 15/16 loss to $17 1/4 on the heels of warning that Q4 EPS may fall roughly 20% short of consensus estimates, as the company needs time to "fully integrate" several recent acquisitions... Enterprise workflow and electronic forms automation company JetForm Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORMF)") else Response.Write("(Nasdaq: FORMF)") end if %> was shredded for a $2 1/32 loss to $11 5/8 after announcing it expects fiscal Q2 EPS of around $0.16, which would fall short of analysts' projections of $0.19. Operating income is anticipated to be roughly $3 million, 14% lower than last year, due to weaker-than-expected revenues in Europe... Delivery services company Dispatch Management Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DMSC)") else Response.Write("(Nasdaq: DMSC)") end if %> lost $3 5/16 to $9 9/16 after not reporting earnings as expected yesterday, fueling concerns that results may be lower than expected.
News Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWS)") else Response.Write("(NYSE: NWS)") end if %> American depositary receipts tumbled $2 1/16 to $26 5/16 after the media company reported fiscal Q1 operating EPS of $0.20, short of analysts' projections of $0.34... Document management company Merrill Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MRLL)") else Response.Write("(Nasdaq: MRLL)") end if %> fell $15/16 to $15 1/4 after warning it expects fiscal Q4 EPS to fall short of last year's $0.36 on weak demand for printing financial documents... BrightStar Information Technology Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BTSR)") else Response.Write("(Nasdaq: BTSR)") end if %>, an enterprise resource planning (ERP) software systems implementation company, shed $5/8 to $8 1/2 after reporting Q3 EPS of $0.14, matching the estimates of two analysts listed by First Call... Information technology and professional services company Modis Professional Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MPS)") else Response.Write("(NYSE: MPS)") end if %> slid $1 15/16 to $14 1/2 after reporting Q3 EPS of $0.20, up from $0.15 a year ago and even with analysts' estimates.
Earnings Movers
Advanced Lighting Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADLT)") else Response.Write("(Nasdaq: ADLT)") end if %> down $5/8 to $7 1/2; fiscal Q1 EPS: $0.01 vs. $0.15 last year; Estimate: $0.10
ATEC Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATEC)") else Response.Write("(Nasdaq: ATEC)") end if %> down $5/8 to $6 1/4; Q3 EPS: $0.03 vs. $0.08 last year
Dimon Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DMN)") else Response.Write("(NYSE: DMN)") end if %> down $3 3/8 to $8 3/4; fiscal Q1 EPS: loss of $0.19 (excluding gain) vs. gain of $0.45 last year; Estimate: gain of $0.05
Pacific Gateway Exchange <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PGEX)") else Response.Write("(Nasdaq: PGEX)") end if %> down $3 9/16 to $41 3/16; Q3 EPS: $0.29 vs. $0.17 last year; Estimate: $0.29
Star Telecommunications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STRX)") else Response.Write("(Nasdaq: STRX)") end if %> down $2 1/8 to $14 3/4; Q3 EPS: $0.09 vs. $0.02 last year; Estimate: $0.09
Teligent <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TGNT)") else Response.Write("(Nasdaq: TGNT)") end if %> down $3/8 to $30; pro forma Q3 EPS: loss of $1.49 vs. loss of $0.63 last year; Estimate: loss of $1.45<% ' AvantGo:End %>
FOOL
ON THE HILL
An Investment Opinion
by
Alex Schay
eBay's Rise
<% ' AvantGo:FOTH %>Here comes a familiar refrain: eBay <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %> was bid up again today. The online auctioneer gained $10 1/16 to $126 on... no news. Yesterday, the restless stock dipped 11.4% after soaring 27% and 23% in the two prior trading sessions. In a case of "dueling brokers," eBay was downgraded to "market perform" by analyst Jamie Kiggen at Donaldson, Lufkin & Jenrette (DLJ) when the stock hit $130 -- by virtue of the fact that in DLJ's estimation eBay's equity has been "Over-Bought [in the] Near Term." Kiggen felt no compunction to raise his price target above $100 (based on a discounted cash flow and member-based model), which was established on October 26 when DLJ initiated coverage on eBay.
The day before DLJ cautioned investors to take a breather, Goldman Sachs raised eBay's target price to $150 from $90 (Tuesday), highlighting the notion that eBay "blends the best of the visibility and high margins of Yahoo's advertising model with the revenue momentum of Amazon.com's commerce model." According to Reuters, during the Goldman price target mambo, the firm also indicated that the numbers utilized were "conservative" and "likely to be raised in subsequent quarters." The important thing for investors to consider when investing in "hyper growth" Internet issues is that casting aside traditional metrics and buying at an analyst's target price essentially equates to signing off on all the assumptions inherent in the DCF model. Translation? In order to make a market return, just assume that all those solid operating quarters built into the numbers have already come to pass.
First, let's take a look at the business model that everyone is getting so excited about. On Labor Day in 1995 eBay opened for business, facilitating transactions between buyers and sellers of various goods on the Internet. It's important to realize that eBay just brings the participants together in a community forum and doesn't actually buy or sell items itself (unlike a broker/dealer on the Street). Hence, the company carries no inventory and makes 98% of its revenues through transaction costs to sellers -- the firm has yet to exploit traditional banner ads partly for fear of conflict with its community (though targeted category-specific partnerships are in the works). Here are the three tiers of transaction costs for sellers:
Insertion Fee -- $0.25 - $2.00
Feature Fee -- For promotion (optional)
Final Value Fee -- 1.25% - 5%
This model has resulted in eBay pulling down a very steady 6-7% in net revenues from gross merchandise sales. For example, in the last quarter over $195 million in goods were bid on at eBay, and the firm managed to bring $12.9 million to the topline in fee revenue. Given that 9.2 million auctions (about 100,000 a day) were hosted during the quarter and roughly half of those were actually completed, the average item auctioned went for about $40. This figure has risen 25% over the last ten months from $30. In terms of sheer transaction volume, eBay is facilitating an annualized $780 million worth of goods exchanged, which definitely puts it near the top in Web merchandise sales -- of course, it generates a minuscule annualized net margin of 0.0034% on gross mechandise sales.
Excluding non-cash charges for eBay's acquisition of Jump and $2.2 million for the amortization of stock compensation ($8.9 million over 4 years for "undervalued" stock sold to employees at the IPO, according to the SEC), operating margins at eBay in the third quarter held steady on a sequential basis at 21%. Gross margins dropped to 84% from 87.6%, thanks in part to infrastructure investments on the back end that will allow the company to operate at about 10 times its present online capacity. The economics of eBay's returns are impressive (consistent with the promise of all non-bricks-and-mortar Web operations), with a return on invested capital of about 46%. This figure nets out 95% of that huge lump of cash sitting on the balance sheet from invested capital -- where cash and equivalents actually represent 83% of total assets (thanks to the recent IPO).
What does eBay need to do to keep attracting new users and generate greater transaction volume? Well, in an attempt to consolidate its lead in the auction market, the company has to spend on advertising and promotion, although up until the fourth quarter of last year the company's growth was all through "WOM" -- word of mouth. In the third quarter the company spent $5.476 million on sales and marketing, and projecting that amount into the next quarter (with a slight increase) in order to compare it with the first six months means that the firm is spending roughly 2.5 times what it spent on marketing in the first six months. Estimating "product development" expenditures for the second half in a similar fashion yields a figure that is double what was spent in the first half.
What kind of growth is eBay getting from this projected investment? Well, registered users increased 48% from 851,000 in the second quarter, to 1,265,000 in the third quarter. Of course, with this kind of momentum it's impossible to figure out what can be attributed to the first six months of investment, but the growth is there. Consider that on October 20th eBay began a radio advertising campaign in 3500 spots. This comes on top of the firm's agreement with America Online at the beginning of August, the deals with 39 other Internet companies to direct traffic to eBay, and the ads in such magazines as Sports Illustrated, Time, People, and Newsweek. The firm is probably still working out which medium is generating the best return for its ad dollars, and this will continue to be a huge project for the balance of the year and beyond.
So what about competition? One of the biggest knocks against the firm is that it doesn't have any proprietary technology, and that "just about anyone" can get into the business. Today, there are really only two competitors worthy of note, the combination of Yahoo and OnSale at http://auctions.yahoo.com/ and Excite's Classifieds 2000 http://www.classifieds2000.com. Both competitors offer free listings for users. In both instances, the firms' business models are natural extensions of their strategy to grow their base of users through the provision of unique services. It's important to note that both auction sites have been around for about a year -- in some incarnation -- and their existence hasn't put a damper on eBay's growth yet (although a renewed push on Yahoo's behalf is a threat).
Unlike Amazon.com, where the benefits of "community" can break down very rapidly when its prices are undercut by other online booksellers with similar delivery schedules, eBay's "community" offers a number of pretty concrete advantages. Thinking about what attracts participants to such a forum, two issues come to the fore: (1) the ability of sellers to get the maximum possible price for an item, and (2) the ability of buyers to find what they're looking for. Thus far, the fact that 30-40% of registered users are participating in auctions at any given time in a market with over 1000 unique categories of merchandise is pretty solid testimony to the network effects that have already played out at eBay. As far as buying merchandise goes, go to the site yourself and use the search function. Type in some relatively obscure collectors item that might be of interest to you -- you might be surprised at what you find. (This columnist has successfully bid on some old movie camera equipment and some out-of-print books.)
In addition to a critical mass that already commands attention, eBay's feedback system allows any user to make comments about any other user in order for each participant to build a business dossier of sorts. The ability to check the business transaction background of each user encourages everyone involved to conduct business in a professional manner, as well as allowing professional sellers to build a reputation (which is a big part of eBay's business). The bottom line is that existing users will not migrate elsewhere until they can get better prices and options elsewhere. Although on the buy side (joke intended) less liquid markets might provide prices that are lower than established markets -- opening the opportunity for arbitrage. "Deals" can still be found at eBay.
Of course, the analysis over the last couple of paragraphs has all been divorced from the question of what a buyer should reasonably pay for eBay's equity. Again, at current prices all the good things that are projected to happen -- like an 80% compound annual growth rate and operating leverage materializing -- have already been baked into the stock, and then some. This columnist's quick and dirty discounted cash flow puts a fair value on eBay at around $75 -- with a multiple on terminal value EBITDA that is probably lower than published estimates (at 10) and a discount rate of 20%. Taking published figures here and elsewhere, investors should build their own models and see what assumptions yield what results. While eBay may be an excellent business, it's certainly not trading at anywhere near an excellent price.<% ' AvantGo:End %>
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