Changes to a Web site usually don't matter much to the market.

That is, unless you're

eBay

(EBAY) - Get Report

and that little change involves the removal of a closely watched statistic from public view. On May 9, the online auction giant removed from its homepage its listing of the number of items up for auction (the number had recently hovered in the 4.3 million range). Even though eBay had signaled it would do so in a quarterly conference call with analysts and investors, some observers read the move as a sign of weakness in the company's core business -- a notion eBay denies. Still, its stock has slid 15% since the earnings call amid fears that demand is slowing.

The episode illustrates how quickly investors in a jittery tech market can react to any perceived bad news. Though eBay is one of the only Internet names to actually make money, the stock still trades at 330 times prospective 2000 earnings, certainly well past rich by conventional valuation standards. That makes accurately gauging growth an even more crucial task, a task eBay executives emphasize must involve measures well beyond counting the number of auctions.

Slowdown Worries

eBay's head of investor relations, Rajiv Dutta, says he had long wanted to remove the listings number, which he called "one variable" in the equation that produces revenue for the company. "We have no problem with investors looking at the different pieces, but we have a problem when they jump to conclusions with regard to revenue," says Dutta. "We don't want one variable creating volatility in the stock."

May Flowers?
eBay Shares Slide Through the Spring

Source: BigCharts

Worries about eBay's core business actually began before its earnings conference call. An April 17 article in

Barron's

noted that the number of domestic auction listings had leveled off, and wondered if, because the company earns a fixed amount per listing plus a commission on auctions, a slowdown in revenue and earnings would follow. (A second piece on May 1 repeated the concern.)

eBay disputes that notion. Simply looking at the number of auctions going on at any one time doesn't tell the whole story, Dutta says. To arrive at revenue, he says it's necessary to also consider the conversion rate (the percentage of auctions that are actually completed), the average selling price, the duration, or "velocity," of the auction (seven days for eBay, longer for rivals like

Yahoo!

(YHOO)

). eBay doesn't release its conversion rate or its average selling price, because it considers those figures strategic information. It does note that total auctions rose 31% in the first quarter from the fourth quarter, which in turn rose 13% from the third quarter.

Where to Look

So what numbers should investors look at? Well, revenue, for one, says Dutta. (Revenue rose 16% to $85.8 million in the first quarter from the fourth.) Also: gross merchandise sales, or the total value of goods sold. That rose 28% from the fourth quarter, to $1.15 billion. Finally, registered users, which rose 26% in the first quarter from the fourth. "We are running a pretty transparent business," says Dutta. "You can see the moving parts."

Diversifying

Fine. But growth in the auction business must certainly slow at some point, right? Certainly. "It's the law of large numbers," says Gary Bengier, eBay's CFO. "Inevitably you'll have a lower percentage growth." eBay is thus continuing to shift into noncollectibles categories, even though it still sees a lot of room to run in the collectibles segment. Stamps, for example, are a $1 billion market, and eBay has just 6% of this market. "We have a really long way to go with our core business," says Dutta. And the company is diversifying into other areas, too: autos, local auction listings, premium sales, B2B, international expansion and the Billpoint payment system, which lets users conduct credit-card transactions. Since those are nascent markets, they naturally offer higher growth rates than the core business, says Dutta.

And newer lines have higher margins. "New initiatives have the impact of increasing velocity of higher-ticket items," says Tim Albright, an analyst with

Salomon Smith Barney

who rates eBay shares a buy. (His firm has done recent banking for the company.) "Computers, routers and office furniture sell for more than Beanie Babies and Pokemon."

But back to the listings issue. Isn't eBay simply removing a figure that isn't likely to do much for its stock price? Maybe. But the number can work to eBay's advantage, too. Its stock jumped 7% on Sept. 9, when a free listings day produced a spike in listings. Recently, the number of listed items jumped to 4.8 million. "I guarantee, the stock would have jumped if the number were on the site," says Dutta. And he also notes that anyone who wants to can calculate the number of items on the site by adding up individual categories. He maintains the figure isn't particularly useful to investors trying to track the real progress of the business.

And while analysts talk a lot about the company's new plans, by no means are they writing off the original business. "We've had concerns in the past about the slowing of the core business, but it continues to grow really strongly," says Michael Gross, an analyst with

Lehman Brothers

who rates eBay shares a buy. (His firm has done recent banking for the company.) "Our big concern was that the core collectible business had reached saturation, but from what we see, there's still a lot of growth there."