eBay: The Sweetheart of the Fund Managers

eBay (EBAY) shareholders' proxy proposal votes will be announced later this week. But institutional investors have already been voting with their pocket books.

In the first quarter, more than 200 institutional investors -- mutual, index and pension funds -- either bought into eBay or increased their stakes in the online auctioneer, according to FactSet Research Systems' LionShares site. The net holdings in eBay of such investors increased in the first quarter by about 11.8 million shares, a stake that is now worth about $1.2 billion.

Much of the buying appears to have come from index funds that bought up eBay stock as it soared compared with the rest of the Nasdaq 100. But some also seems to have come from portfolio managers eager to pick up an Internet winner.

Forget about the company's sky-high valuation or its profligate use of stock options, analysts say. Investors are ignoring anything negative about eBay right now, they say.

"Given that you are running a large mutual fund and you want to keep your foot in the door of the Internet business, eBay is one of the few companies that has been successful in that arena," said Paul McEntire, portfolio manager of Skye Investment Advisors' Marketocracy Technology Plus Fund (TPFQX). "People aren't given a lot of great choices in that area." (McEntire's fund does not have a position in eBay.)

The company's proposal to increase the number of options it can grant by more than 50% has drawn criticism from proxy advisor Glass Lewis and the California Public Employees Retirement System, which plans to vote against it. Other big shareholders such as Fidelity and Vanguard could also vote against the plan, if they follow their proxy voting guidelines.

Do I Hear $103? Institutional investors that bought the most eBay shares in the first quarter
Institutional Holder	Shares held, end Q1	Shares bought since Q4 '02	Percentage Stake in eBay	Portion bought in Q1
Marsico Capital Management LLC	4,487,342	4,487,342	1.4%	100.0%
TCW Asset Management Co.	8,156,898	3,559,292	2.6	43.6
Fidelity Management & Research Co.	8,883,653	3,243,811	2.8	36.5
Barclays Global Investors, N.A.	8,522,531	2,007,112	2.7	23.6
Northern Trust Global Investments	2,906,788	1,395,365	0.9	48.0
Morgan Stanley Investment Management (NY)	4,927,179	1,095,799	1.6	22.2
Merrill Lynch Asset Management, Inc.	1,428,768	903,717	0.5	63.3
ING Investments, Inc.	935,913	744,743	0.3	79.6
Jennison Associates LLC	840,200	742,700	0.3	88.4
ING Aeltus Investment Management, Inc.	861,046	710,041	0.3	82.5
Source: FactSet Research Systems' LionShares.

Sticking With a Winner

But other institutional investors could be reluctant to rock the boat. eBay's stock climbed nearly 26% in the first quarter alone and has jumped more than 50% year to date. Meanwhile, the company has continuously reported soaring revenue and record earnings, albeit not including the cost of stock options.