big run come to an end?
That is what a number of analysts are speculating after seeing the company's stock fall 9% since the e-commerce giant reported second-quarter earnings last week. A number of factors are weighing down the company's shares, they say, including a loss of momentum, growing seasonality, slowing growth and potentially threatening competition.
With the company unlikely to throw off these factors anytime soon, eBay's shares may be stuck in neutral for a while, if they don't continue to slide, analysts say.
"I think the buyers are just tired," said Heather Brilliant, who covers the company for Morningstar. "There are only so many institutions out there that can keep pushing eBay's stock up -- and most of them already own eBay." (Morningstar does not do any investment banking.)
eBay has had a great run in recent months. The company's shares have doubled since October. Even with the recent selloff, they are up about 55% year to date.
Shares were down $1.92, or 1.82%, to $103.36 on Monday around 10:30 a.m. EDT.
That performance since the end of last year isn't as good as fellow online players
, whose stocks are up 92% and 112%, respectively, in that same time period. But eBay's shares have far outpaced the
, which are up 29% and 10%, respectively, this year.
The company's financial engine has helped drive up its shares. In the second quarter, eBay's net earnings more than doubled from the same period a year earlier to $109.7 million, or 33 cents a share. Meanwhile, its sales nearly doubled to $509.3 million.
The company now projects that it will earn as much as $1.31 a share in 2003. That guidance is 26 cents a share more than the original 2003 earnings estimate eBay gave last October.
But if everything's going so well for the company, why the selloff?
Some analysts say it's simply a case of losing momentum. The company's stock rise outran the market, said one hedge fund analyst, who asked not to be named. With the broader market appearing to slow down, eBay's likely to trade in line with it, said the analyst, who has no position in eBay.
"We're in the lull period of the summer," said the analyst. "It deserves a rest just as everything else is taking a rest."
Part of the problem for eBay, analysts say, is that there's nothing likely to spark its stock in the near term. The summer months are often slow for the company, its second-quarter report is already past it and nothing else seems to be waiting over the horizon, they say.
Meanwhile, the company's stock continues to have a high valuation, despite the recent decline in its shares. eBay is currently trading at more than 80 times its projected GAAP earnings this year. And that figure is understating the premium placed on the stock, because the company does not expense the cost of its prolific stock options program.
"They continue to do well," said Paul Meeks, founder and analyst at Meeks & York. "But a company like this, with this valuation, requires a steady diet of greatness."
(Meeks has no position in eBay and Meeks and York does not do investment banking.)
Some argue that the company's second-quarter report was less than spectacular and has helped trigger the recent drop in eBay's stock price. They point to the fact that the company's stock has fallen in every session since it reported its earnings last week.
Although the company saw its earnings and revenue jump in the second quarter, it wasn't exactly a straight comparison. eBay's second-quarter results last year did not include PayPal, which the company acquired last fall.
And about 10% of its revenue growth came from the change in currency rates, which has sent the value of the dollar lower against other currencies -- and made eBay's overseas sales appear larger than they would have been. The company did not say how much foreign currency changes affected its bottom line.
Perhaps most troubling for eBay bulls, the company's growth rate has begun to slow. Both its domestic and overseas revenues grew at their slowest rate in five quarters. Meanwhile, company officials lowered eBay's earnings guidance for the third quarter and complained about a lack of supply in its automobile category, one of its key growth drivers.
eBay officials blamed a number of these problems on growing seasonality in its business, saying that as the company enters the mainstream, they expect to see increasingly slower sales in the summer months.
The problem is that investors are expecting accelerating growth from eBay, said Scott Rothbort, president of Lakeview Asset Management and a contributor to
TheStreet.com's Street Insight
. But that expectation doesn't square with a seasonal business, he said.
"True growth stocks should be able to grow beyond seasonality," said Rothbort, who is short eBay. "I think people are taking a serious look at eBay. Those who were smart enough to ride it up here are beginning to sell it out."