INVESTING: Ebay still shines among techies despite poor quarter

Keywords Technology

So Ebay Inc. got clocked last week. The stock dropped 20 percent in one day after reporting earnings that missed the consensus estimate. Money managers all over were shaking their heads after getting so used to the company’s easily beating estimates, then raising the bar for the next quarter.

Ebay’s story is amazing and I am impressed by the management of the company and the still-dominating stock price. Ebay is one of the most recognized brands around and the company is not even 10 years old.

Back in the day, the late 1990s, the four Internet stock champions were America Online Inc., Yahoo Inc., Amazon.comInc. and Ebay. AOL is now part of Time Warner Inc., while Yahoo and Amazon shares would have to double to get back to their old highs. But Ebay hit a new all-time high last year.

You can’t find another well-known technology stock that is even close to reclaiming the highs last seen in 2000, yet Ebay’s stock surged to new highs throughout all of 2004.

The story of Ebay is similar to that of other California high-tech startups. The founder saw a need, in this case people willing to sell and trade Pez dispensers over the Internet, and essentially opened a company in his garage to facilitate this. A culture of trust rapidly spread and soon Ebay grew into an online flea market.

Ebay’s success is attributable to brilliant management. The founder stayed on long enough to ensure the culture was completely ingrained in the company. Then, right before so many other Internet companies imploded, Ebay hired a brick-and-mortar executive, Meg Whitman, who turned the company into a true machine.

Today, Ebay is the online auction site for stuff ranging from actual garbage to cars and high-end luxury goods. Retailers all over the world hold auctions for new stuff, hoping to trick the consumer into thinking he is getting a bargain. And even though other Internet giants like Yahoo and Amazon have tried to set up auction sites, Ebay stands almost completely alone in the category, still controlling more than 90 percent of the market.

Every great success has stumbles along the way. Ebay reported a terrible quarter and, after the analysts woke up from their daze, they surmised that almost everyone in America who is eventually going to use Ebay is already there. In other words, the growth story is done.

There is another layer here, though. In the last 18 months, management has been busy buying Internet auction sites in places like India and China. China and India are going to pay off for American companies investing there, but it will take a while. I have a good feeling that, within three years, Ebay is going to be one of the most dominant consumer sites in Asia.

Until then, Ebay might be stuck in low gear. At this point, people have to separate companies and their stocks. Ebay will continue to evolve into one of the most successful stories in corporate history. The stock, which is currently trading for $82 a share, could easily drop to $50 over the near term. Maybe it’s Ebay’s turn to get knocked around in the market for a while, but as long as Whitman is in charge, it’ll come back.



Hauke is a local money manager. His column appears weekly. Views expressed here are the writer’s. Hauke can be reached at 566-2162 or at keenan@samexcapital.com.

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