What to make of

eBay's

(EBAY) - Get Report

disclosure that it may decide to raise as much as $1 billion from selling stock?

Investors clearly didn't approve, sending eBay shares sharply lower Friday. The stock closed down $2.14, or 3.9%, after falling as low as $51.11. Why's that?

One possible conclusion is that the San Jose, Calif., company is gearing up to make acquisitions outside of its core auctions business. Investors must be vigilant when a successful company decides to branch out into something new. Another explanation is that eBay is simply being opportunistic, planning to sell stock while its valuation remains strong. Recent insider sales could be a sign that top eBay executives don't think the stock can go much higher. As you can see, neither guess is cause for comfort.

eBay didn't return a call seeking comment.

Thursday, eBay filed what's called a shelf registration, a document that tells investors that it may issue stock from to time to time, at prices that will determined at the time of offering.

eBay doesn't need the cash to finance its business, as it stands today. In the first six months of 2001, it had cash flow from operations of $106 million. Subtracting capital spending of $29 million gives a "free cash flow" of $78 million. And remember that eBay also had nearly $700 million of cash and short-term investments sitting on its balance sheet at the end of June. This is not a cash-strapped company.

So why sell stock? In the filing, eBay stated that proceeds were to be used for "general corporate purposes." The company added that, from time to time, it may use some of any money it raises to make acquisitions. eBay CEO Meg Whitman was reported saying Friday that any extra cash would give eBay the flexibility to make acquisitions quickly.

But who might eBay want to buy? Sure, there may still be online auction sites around the world that are worth snapping up. There's

Sotheby's

(BID) - Get Report

, for starters. Notably, the company has a market cap just shy of a $1 billion.

In addition, this tech depression is a perfect time for a solid company like eBay to go around snapping up online auctioneer bargains, if any such operations exist. But is there really $1 billion worth of these types of acquisitions? Probably not.

Maybe eBay has its eyes on bigger targets.

Yahoo!'s

auctions are popular in Asia. But it's hard to see Yahoo! selling off just its Asian auctions at a time when it's trying monetize more of its operations. So maybe eBay would consider making a bid for Yahoo! as a whole, especially if its stock dropped below $10. An eBay-Yahoo! combination has many supporters on Wall Street. But that would be dangerous move. It's hard to see what eBay could gain from owning Yahoo!, other than the Asian auction market. eBay wouldn't gain much in the way of profile. In the U.S. and Europe, anyone who knows and uses Yahoo! will almost certainly know about eBay.

And eBay is extremely unlikely to buy a full-fledged e-tailer. Investors love the company because it carries no inventory. If it were begin to do so, and thus require much more working capital, the stock would tank.

So where could eBay go from here? Maybe the company can do for some part of the business-to-business world what it has done in the consumer-to-consumer market. But it'd have to focus on a small number of products. Or it could just provide the software for a B2B marketplace. But why would eBay fare any better than, say,

Ariba

?

The seeming lack of acquisition opportunities suggests that eBay is just being opportunistic in making this filing now. Maybe executives sense that the company's stock, trading at 118 times expected 2001 earnings of 45 cents, isn't likely to climb above recent highs anytime soon, especially in this bearish environment. Recent insider selling suggests certain top-level employees see this as an apt time to sell. For example, on July 30, Chief Operating Officer Brian Swette filed to sell $18.6 million of stock.

Finally, there's the remote possibility that the filing is a sign that eBay is going to stop doing so many acquisitions. What? Consider the possibility that the recent strong cash flow position is, in fact, the result of the many acquisitions eBay has done over the past two years, not organic growth. In other words, if the deals were to stop, would cash from operations suffer? And is that why the company wants to raise more cash?

That seems unlikely. But, after this filing, investors need to watch eBay very closely.

Know any companies that the market may be misvaluing? Detox would like to hear about them. Please send all feedback to

peavis@thestreet.com.

In keeping with TSC's editorial policy, Peter Eavis doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.