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Wednesday, July 19, 2006

Widely Traded 48 Hour Clock: eBay's Problem

Stocks: (EBAY)(GOOG)(YHOO)

Yahoo!'s poor earnings reports and difficult guidance put addition pressure on eBay to prove that the old-line internet companies are not being damaged by new comers like Google.

eBay faces issues that Yahoo! did not, making the pressure on the online auction giant even greater.

The company's $2 billion purchase of VoIP company Skype is considered a debacle by many investors. Forecasts are for the phone unit to have revenue of $200 million, making the acqusition price unusually expensive. eBay has yet to make a compelling case for how the VoIP company will help its core auction business.

eBay has lost several important managers, the most recent being the head of its PayPal online payment system. The products from this unit dominate online money transactions across many parts of the web.

eBay is also faced with Google's announcement that it has launched a competitor to PayPal. Although Google's forays outside its core search business have not produced much in revenue for the search company, it certainly has the muscle to give PayPal a headache, and could take considerable share from the eBay unit.

eBay may never have faced this number of core issues about its business going into an earnings report. Its stock has dropped from a 52-week high of almost $48 to $25.70. Nearly $35 billion of market cap have left the building over the period.

eBay's stock is down to a price to sales ration of 7.6 according to Yahoo!Finance. By contrast, Google's comparable figure is 17 times.

After a three year period that saw eBay's revenue grow from $1.625 billion in 2003 to $5.278 in 2005, grow has slowed considerably. The last two quarters eBays revenue has been fairly flat at just North of $1.5 billion.

If eBay is going to make a stand, it will have to be now, or its stock could very easily move down toward $20.

Douglas A. McIntyre can be reached at He does now own securities in companies that he writes about.

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