More Holiday Cheer at eBay

Analysts are optimistic the company will beat fourth-quarter estimates.
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Online auctioneer


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has put some investors in the holiday spirit.

The company, not the first outfit that pops to mind when making a holiday shopping list, has launched a marketing plan aimed at attracting gift-giving dollars. Early signs indicate the effort is paying off in the form of increased listings, pushing some Wall Street analysts to raise their earnings estimates for the fourth quarter. Investors have also given their stamp of approval, as shares are up about 10% since Thanksgiving, the traditional start of the holiday shopping season.

The campaign includes television spots, emails and a glossy catalog that began appearing in the nation's newspapers on Sunday. The catalog features an array of goods available on eBay, from toys to vintage clothing to electronic goods, and illustrates how far the company has evolved from a quirky seller of trinkets to the global bazaar it is today. eBay fell $1.31 Monday, to $66.76.

Dead Trees

It is the first time the company has opted for print advertising, and the circular will appear in 55 newspapers on three consecutive Sundays. "The idea there is that there are people who read newspapers but may not use the Internet," says Kevin Pursglove, a spokesman at eBay. The company has not disclosed how much the campaign costs, but Merrill Lynch estimates eBay is spending about $40 million on advertising in the fourth quarter, up from $26 million in the year-ago period.

A variety of data, from market research firms and some brokerage houses' own statistical analyses, suggest the company is in solid position to top Wall Street earnings estimates for the fourth quarter. At the very least, a shortfall is highly unlikely, despite an economic recession that has traditional retailers on edge.

In response, several Wall Street brokerages, including Merrill Lynch, Prudential Securities and Deutsche Banc Alex. Brown, have published bullish reports that either raise estimates or suggest the company could top consensus forecasts.

In the week of Thanksgiving, visits to eBay surged 57% to 4 million average daily unique visitors, compared with 2.5 million in the year-ago period, according to Jupiter Media Metrix. Over that period, growth at eBay outstripped overall growth in traffic to e-commerce sites as well as visits to

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An analysis of listings data conducted by Prudential's Mark Rowen led him to raise his revenue and earnings estimates for the quarter. He now expects the company to earn 13 cents a share on revenue of $215 million, up from 12 cents on $209 million. (He has a buy rating on the stock, and his firm has had a banking relationship with eBay.)

Seeing the Forest

On average, Wall Street analysts expect eBay to earn 12 cents a share on $211 million in revenue, according to Thomson Financial/First Call. This would represent a 57% increase in revenues from last year's fourth quarter, and a 33% jump in earnings.

Another analyst, Jeetil Patel of Deutsche Banc Alex. Brown, says eBay could top sales forecasts, though his estimate of $208 million is lower than average. As for earnings, he is more cautious: "We could see some upside there, but we need to wait and see what the rest of the month brings," he says. (He has a buy rating on the stock, and his firm has had a banking relationship with eBay.)

Regardless of whether eBay beats earnings estimates, the stock is still expensive by usual valuation methods. Shares have nearly doubled this year, and now trade at a pricey 92 times next fiscal year's estimated earnings, according to Thomson Financial/First Call. Investors, evidently, have confidence in the company's ambitious growth plans that call for $3 billion in revenues by 2005, a goal that implies roughly 50% annual growth.

Yet investors also have put eBay on a short leash, and they have shown they will unload shares at the slightest hint of earnings worries. For example, when eBay reported third-quarter earnings in October, the stock fell after the company said fourth-quarter earnings would merely be in line with expectations.

But as the recent holiday shopping data suggest, that forecast may have been cautious.