eBay Details How Options Expensing Would Hurt

eBay's (EBAY Quote) stock may have sold off in the last month, but with its shares continuing to trade at a hefty valuation, the company apparently still believes that they make a valuable currency.

In its most recent quarter, the online-auction giant on Wednesday revealed the costs of its prolific use of stock options to compensate employees. Additionally, the company filed a so-called shelf registration of 10 million shares of stock to use for acquisitions of "other businesses, assets or securities."

An eBay representative did not return a call seeking comment.

The company's stock moves follow a recent drop in its share price. eBay shares ended regular trading on Wednesday at $75.50, off $1.28, or 1.7%. eBay's stock has dropped about 18% since it peaked in late June. Over the last month, investors have sold off eBay and other Internet companies after those companies missed earnings expectations or issued disappointing guidance.

Despite its stock drop, eBay isn't much of a bargain. The company's shares are up more than 17% year to date and nearly 200% since they bottomed out in October 2002.

eBay's stock is trading at more than 66 times the company's expected earnings for this year and nearly 50 times its expected earnings for 2005. While those earnings estimates are on a GAAP basis, they don't include options costs, meaning eBay's actual valuation will soar if it's forced to expense options.

Like many other technology and Internet companies, eBay uses vast numbers of stock options to compensate its employees. But like many of its tech brethren, the company does not include the cost of the stock options it issues as an expense in its income statements. In fact, when the company reported its earnings last month, CFO Rajiv Dutta declined to provide that cost, pointing those interested in the expense to the company's upcoming quarterly report.