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eBay's Bid for Huge Growth Clicks With Loads of Funds

Janus and others love this pure Net play with profits.

The Internet mania may be over in many circles, but the party is still on at


(EBAY) - Get eBay Inc. Report

. And some of the biggest revelers are mutual fund managers.

The online auction titan boldly

projected eye-popping revenue growth over the next five years, sending its shares up 17% and taking several stock funds along for the ride.

During its annual powwow with securities analysts on Wednesday, the San Jose, Calif.-based shop set a lofty $3 billion revenue target for 2005, implying annual revenue growth of nearly 50% between now and then.

The rosy projection exceeded expectations, and sent eBay's shares up $10.88 to $76.56 on the day. Before today, the stock was up just 4.9% on the year, but for the more than 130 stock funds that own shares, Wednesday may have been worth the wait. The projection is good news for owners of those funds and it might be even better if the company manages to hit its bold target. But, that won't be easy.

"You've got to take anything a company says with a grain of salt because they're always trying to send a positive message. That said, their business model does allow for good margins. They basically charge sellers a fee for accessing all those buyers and buyers show up because of all those sellers. It's sort of a self-fulfilling prophecy," said David Kathman, a


stock analyst specializing in e-commerce companies.

He points out that to grow that quickly will be difficult as the company gets larger, noting that the key will be successful expansion into new geographic and product markets.

"These rosy growth projections are based on successful expansion overseas and expansion into different types of things being sold, higher-end stuff like cars. The company just celebrated their fifth anniversary online. We're looking five years down the road so anything can happen," Kathman says.

For most managers, a bet on eBay boils down to a bet on the online auction business as a whole. And more managers have taken that bet this year. At the start of this year, 95 U.S. stock funds owned shares, and today that number is at 135, according to Morningstar. However, this bet carries a big price tag: The company's price-to-earnings multiple is a whopping 597.

One tremendous advantage for eBay is its utter dominance within its sector, with its revenue and market capitalization dwarfing that of other Net auctioneers both here and abroad. Like profitable portal

Yahoo!, eBay is one of the few "pure play" Net companies that has consistently turned a profit and sustained an audience among fund managers.

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"The stock has been down because of lower traffic in the summer," says Alan Loewenstein, co-manager of the

John Hancock Technology

fund. Loewenstein and his colleagues sold the stock in the spring, but they "always have interest," he says, declining to comment on their current interest.

Fund managers at



Merrill Lynch

are among the believers, according to the most recent portfolio data available. Between them, fund managers at the two shops bought some 7.5 million eBay shares in the second quarter, according to

, a Web site that tracks institutional ownership. At the end of June, Janus was the top institutional shareholder, with a 4.9% stake worth some $822 million.

On the flip side, fund titan


and hedge-fund manager

Pequot Capital

dumped more than 5 million eBay shares in the second quarter. Like Janus, both shops are known for their acumen at picking tech stocks.

For his part, Kathman sees good things for eBay, as long as the company doesn't alienate its vast community of sellers and bidders, which he says is its core advantage over competitors.

"This big bump is pretty significant. I like the stock in general," he says. "I like the stock long term, and in the short term I don't see anything that would knock it down."