eBay's (EBAY) - Get eBay Inc. Report 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.
In that report, which was filed on Wednesday, eBay revealed that options costs would have cut its reported earnings by about 12%. Had the company included such costs in its income statement, it would have earned $167.08 million, or 24 cents a share, on $773.41 million in sales. Instead, the company reported that it earned $190.4 million, or 28 cents a share.
And that's assuming the company's calculations are accurate. Some analysts and accounting experts have
raised questions about how eBay and other companies are calculating their options costs. The formulas used to determine such expenses can yield widely different answers depending on the variables used.
Among the questions that analysts raised about eBay's options costs were its calculation of its stock's volatility. In calculating its second-quarter options expense, eBay assumed that its stock would have a future volatility of 41%. That's far off the 60% volatility figure it used in calculating options costs for the same quarter last year.
Investors and analysts have increasingly focused on options costs because of a prospective accounting rule that would require all public companies to expense stock options beginning next year.
Because of opposition in the
technology industry and in the
halls of Congress, the rule is
far from a certainty, but most analysts still expect it to go through.
eBay does appear to have taken notice of the potential rule change. In recent quarters it has
handed out fewer options than it did in the past. In the second quarter, for instance, eBay awarded a net grant of about 1 million options, down from 2.4 million in the year-ago period. Through the first six months of this year, the company handed out a net grant, which excludes canceled options, of 14.6 million options, down from 15.3 million in the first half of last year.
The company's largesse has been a boon to employees. In the first half of this year, eBay executives and workers have gained about $457 million from exercising their options. On average, that works out to be a gain of more than $66,000 per employee.
In the first half of last year, employees gained about $180 million from exercising options, or about $34,000 per employee. eBay had about 6,900 at the end of the second quarter, up from 5,300 from the same period a year earlier.
eBay also has benefited from this bestowal. In the first half of this year, the company raised about $355.29 million through employee options exercises. That was down from $472.97 million in the same period last year.
Unless they buy back optioned shares -- which eBay doesn't -- companies receive all of the money up to the strike price for each option sold. Employees gain all of the money between the strike price and the market price of the stock.
Meanwhile, the shelf filing eBay filed on Wednesday replaces a previous one that the company filed in 2001. The shares represent about 1.5% of the company's currently outstanding shares.
Despite having the previous registration on file, eBay has made most of its recent acquisitions with cash. Earlier this month, for instance, the company completed its
purchase of Indian auction site Baazee.com for $50 million in cash, eBay said in its quarterly report.
The big exception to that rule was the company's acquisition of PayPal in 2002. eBay issued about 47.7 million shares to purchase the online payments company, but that was done under the auspices of a separate registration filing.