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Thursday, July 06, 2006

Ebay's Skeptics Have Their Day, For Now

Stocks: (EBAY)(GOOG)(YHOO)

EBay today announced that the president of its PayPal unit was leaving the company and would be replaced by the executive that runs the Skype division.

The announcement was followed by a downgrade by Citigroup and general panic by investors.

Reading the announcement, perhaps there isn't as much between the lines as the market believes.

Wall Street now believes that the new online payment system introduced by Google is going to take PayPal to the cleaners. Maybe the PayPal president didn't do enough to counter Google's move. But that seems doubtful.

EBay's stock dropped almost 5% on the news to a 52-week low of $27.10. The stock traded aroun $60 in late 2004 and early 2005.

Sometimes the markets read too much into news, and this would seem to be one of those cases. Google has not had tremendous success with its recent product introductions. GoogleFinance is not nearly as good as Yahoo!Finance, MarketWatch or MSN Money. Google's photo-sharing service does not seem to have put much of a dent in a market dominated by Hewlett-Packard, Kodak, Yahoo! and independent services like Photobucket.

Investors now have to assume that Ebay is doing very poorly, at least if they want to justify the company losing 50% of its market cap, or about $40 billion. And, today, the evidence is not there.

There are some that see the online payment service introduced by Google as a benefit for EBay.
An analyst at Caris & Co. said as much recently at "Despite being portrayed by many in the media as a 'PayPal Killer,' we think it highly unlikely that Checkout will crimp PayPal's very strong off-eBay growth prospects in the foreseeable future," said Tim Boyd, an analyst for the research firm.

EBay is still the world's No. 1 online auction company. Bear Stearns recently issued a report saying that listing on the Ebay site were up 28% year-over-year for the second quarter. In key markets like Germany, the increase was 46%.

In mid-June, EBay announced that it had signed up its 200 millionth online auction member. The number is so large that to assume another company will compete with EBay in its core business would appear to be bordering on foolish.

Most Wall Street analysts have a target price of $35 for EBay. It won't take much to get it back there.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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