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Update: eBay Sets $3 Billion Revenue Goal as Shares Soar 17%

Updated from 4:34 p.m. EDT

Shares of eBay (EBAY - Get Report) surged 17% Wednesday after the company laid out aggressive growth projections and set a revenue goal of $3 billion in 2005.

The San Jose, Calif.-based company, which held its annual meeting with securities analysts Wednesday, said the goal would imply revenue growth "approaching 50% a year." It based the goal on its estimate of the size of its various markets, including collectibles, practical items, computers, used autos and parts.

Shares of eBay gained $10.88, or 17%, to close at $79.56 Wednesday.

"This is not revenue at the expense of profit," said Rajiv Dutta, the company's vice president of finance, in a telephone interview. He added that the percentage growth projections were based on reported revenues for the second quarter and on analysts' current predictions.

Dutta said questions about the company's specific potential have dogged eBay since it went public Sept. 1998.

Analysts often ask, "'How big are you guys really?'" Dutta said. "'Aren't you guys just an online flea market?'"

"It is actually appropriate, like a lot of other companies do, to lay out a vision of where we are going," he said. He added that he reviewed analysts' projections for the same time period. Most had predicted annual revenue of $2.3 billion to $2.5 billion by 2005, and a few predicted revenue of $2.7 billion, he said.

Lauren Cooks Levitan, an analyst for Robertson Stephens, said investors reacted strongly to the prediction because "it's that much more bold given the management team that made it."

"This is a team that seems genetically programmed to be conservative," she said.

eBay estimated its current potential markets at about $1.6 trillion, increasing to about $2 trillion by 2005.

eBay reported revenue growth of 160.9% in 1999, bringing its revenue to $224.7 million. Dain Rauscher Wessels, in a report issued Monday, predicted 2000 growth of 84.1% and 2001 growth of 32.9% for the company.

The company reiterated its goal of achieving its long-term financial model, including gross margins in "the mid-80% range and operating margins of 30% to 35% before 2005."

While gross margins hit that range early last year, they have since slipped to the mid-70% range, according to research by PaineWebber, which does not expect the margins to surpass 80% before the end of the year.

By putting its confidence in numerical form, the company was able to speak more effectively to the financial community, Levitan said. (Her firm rates the stock a strong buy after upgrading the rating when eBay bought Half.com, a Web site that enables customers to buy and sell previously owned books and music.) Robertson Stephens co-managed the ipo and secondary public offering for eBay.

"A lot of people still think this is the eBay of two years ago," Levitan said. "They think this is a site that has a lot of Beanie babies."

Dutta said the company was considering other acquisitions since the purchase of Half.com. "We can't do everything ourselves," he said, noting that any acquisition search would be "more focused internationally."

Also Wednesday, Dutta said the company was testing a package of software tools intended to allow other Web sites to provide access to eBay auctions more easily. That could threaten closely held businesses including AuctionWatch and Andele, which have made efforts to offer access to eBay auctions, Levitan said.

Smaller companies say the tools are "for the auction business," Levitan said. "Well, eBay is the auction business."

But Henry Gomez and Kevin Pursglove, two of eBay's spokesmen, sought to temper that assessment.

eBay has engaged in legal battles with companies that seek to provide access to its auctions.

"We think it helps us control the brand and enhance the brand out there," Gomez said. But, asked whether development of the tools signifies a shift in eBay's view of such Web sites, Pursglove said:

"Even though we had to take steps against Bidder's Edge legally and we had to exchange a number of letters through our lawyers with AuctionWatch, we've reached agreements with some similar companies. The difference is they're working with us."

As originally published, this story contained an error. Please see Corrections and Clarifications .

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