Good Timing, eBay

eBay's Webcast of its earnings call went kaput just as the Q&A session was getting under way. Plus, more Y2K stuff to worry about.
Author:
Publish date:

SAN FRANCISCO -- In a somewhat troubling session, tech stocks took the biggest hit as all major averages finished in arrears. (For more, see today's

Market Roundup.)

Sale of eBay Continues

After falling 3.2% to 104 3/8 today,

eBay

(EBAY) - Get Report

shares -- according to

CNBC

-- traded as high as 110 1/4 and then fell to as low as 99 in after-hours activity. After the close, the online auctioneer posted earnings of 4 cents a share, beating estimates by a penny.

But the firm's recent stream of bad luck on the technical front continued as the Webcast of its earnings call crashed just as the Q&A session was getting underway. Or did it?

"You are invited to listen to the live broadcast of management's discussion of the results of operations," eBay's site declares. In the literal translation perhaps that meant: "You can listen to the management's spiel, but

not

the Q&A from analysts."

eBay's public relations team was unavailable for comment, although a source at the company's external PR firm (flack fest!) said the outage was unplanned, meaning it's keeping with eBay's ongoing practice. (Low blow, especially since the outage was probably not eBay's fault.)

"Just before the call went kaplooey,

Donaldson Lufkin & Jenrette's

Jamie Keegan asked why, assuming that increased spending on technology and newly acquired businesses would be ongoing, gross profit margins would return to 80s next year from the second quarter's 77% level,"

TSC

columnist

Adam Lashinsky

said. "eBay CFO Gary Bengier said spending would be heavy this year, but just as he was about to answer Keegan's pointed question about next year, the 'line' went dead."

Meanwhile, I still haven't received payment for the collection of

Sports Illustrated

magazines I sold through the site a few months back. eBay continually emails me requesting payment for its "services" but feels it's my responsibility to collect from the alleged buyer, who's in Minnesota.

TSC Special

When one of

TSC

intrepid reporters does a story, it's (usually) memorable. When a group of them band together for an effort, it's guaranteed to be "special." Check out the

When Funds Collide series, which begins today.

Ghosts of Y2K's Future

For as long as I've been able to do math (at least 18 months now), I've known how old I would be in the year 2000 (32 for those scoring at home). I suspect just about everyone else has made a similar calculation.

But other than that, how much do we really know about (

please don't say it ... sorry, I must

) what will happen when 1999 becomes 2000?

The Y2K "problem," that bugaboo of all bugaboos, could be a stealth factor in the disappointing recent performance of financials. The group outperformed the overall market today -- the

Philadelphia Stock Exchange/KBW Bank Index

rose 0.5% -- but has been anything but sound of late. The BKX is down over 7% from its April 27 high.

Worries over interest rates have clearly contributed to the financials' foibles, but as

TSC's

Jim Cramer

described

last week, banks and bonds sometimes dance to the beat of different drum majorettes.

Perhaps something else is at work.

"A lot of financial services companies are expressing caution about Y2K, and not the standard 'canned goods and shotgun shells' stuff," said Brian Gilmartin, portfolio manager at

Trinity Asset Management

in Chicago. "My guess is that all financial services companies will be impacted to some extent, although I don't yet know how material this will be to operations."

For the record, Gilmartin -- who manages about $16 million in separate accounts for high net worth individuals -- is currently long

Bank America

(BAC) - Get Report

,

Chase

(CMB)

and

Finova

(FNV) - Get Report

, among others. (So save the "he's short, he's mean, why quote him?" emails. As for the "but he

only

manages $16 million" emails, that's approximately $16 million more than I manage. And you?)

Gilmartin foresees most of the "dislocations" (a word he didn't use but is standard issue for all Y2K stories) occurring in the securtization market, the world of issues backed by pools of credit cards or mortgages or other assets (including -- seriously -- insurance policies of terminally ill patients.) The ABS market is somewhat nebulous, but is a source of revenue for brokerages and a place where nearly all financial institutions park assets.

"Nobody is going to want anything maturing in the last five business days of the year," the fund manager predicted, referring to both issuers and buyers. "If corporations stop issuing because they don't want to take the chance of issuing in an adverse environment, there goes banking revenue. In the U.S. capital markets, it's really fixed-income firms like

Lehman

(LEH)

and

Donaldson Lufkin & Jenrette

(DLJ)

that might be hurt."

Press contacts at both Lehman and DLJ were unavailable for comment (darn time difference).

Additionally, Finova's executives say if they have to extend maturities on funding vehicles such as commercial paper to avoid dealing with Y2K, they will have to "pay up" in interest and thus could have a hit to earnings, Gilmartin said.

"I don't know how material" the impact will be, he added. "It's something of an undercurrent in the market. Nobody is really sure what the implications are."

Perhaps the recent performance of financials demonstrates the stock market really does forecast what will transpire (or not) six months hence.

P.S.

Gilmartin also frets about banks' potential problems with excess capital (a problem we should all be so injured by), suggesting returns on equity may have peaked. Return on investment is also a concern, he said.

"I think return on capital can be addressed through acquisition or share repurchase," said George Bicher, senior bank analyst at

Deutsche Banc Alex. Brown

. "Too much capital maybe makes a bank want to acquire something they shouldn't which could be a risk. But most banks are buying back stock; that's the right thing to be doing."

However, Gilmartin noted

Washington Mutual

(WAMU)

executives said they are buying back stock but it's "slightly dilutive" short-term to other choices, such as investing in mortgage-backeds.

"Just because companies can repurchase stock doesn't automatically mean it'll add to earnings per share," he said.

Gems and Spurs

Not much to report on my burgeoning career (ahem) as a TV critic. My favorite anecdote on an otherwise blase day was when

Joe Kernen's

reference to the ubiquitous

Pokemon drew complete and utter befuddlement from

Ron Insana

. I'm just not sure if that's to Ron's credit or detriment.

Finally, when the network's rah-rahs like

Tom Costello

(finally) start getting worried about the "selloff in tech" -- after pooh-poohing the

Nasdaq's

6% decline for much of last week -- it's probably a signal the worst is over.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

taskmaster@thestreet.com.

As originally published this story contained an error. Please see

Corrections and Clarifications.