Warm Fuzzies Off the Auction Block at eBay

Also: more on Microsoft tracking stock, and a clarification on Network Associates' sales.
Author:
Publish date:

I remember the warm and fuzzy days of

eBay

(EBAY) - Get Report

, the Internet darling. Almost exactly a year ago, about a month before the San Jose, Calif.-based online auctioneer went public, I wrote a column in the

San Jose Mercury News

that essentially told investors to believe the hype on eBay. Its profitability, seasoned management team and nifty new market would make it a hit, I opined.

That call still looks pretty good today, even at Tuesday's close of 99 9/16, down from a late April high of 234 but far above a split-adjusted offering price of 6 in September.

What's clear from Monday's second-quarter earnings conference call, however, is that eBay's feel-good atmosphere is a thing of the past. That doesn't mean the stock is finished. But the glow is gone. Once eBay was devoted to "community," fun and domination of a niche market it created, drawing many of its users to invest in eBay stock as well. Now it restricts its community from listening to the most crucial part of its conference calls (the Q&A), exudes corporate seriousness and faces competition from the likes of

Amazon

(AMZN) - Get Report

,

Yahoo!

(YHOO)

and

Dell

(DELL) - Get Report

.

Once eBay's executives were open and accessible. Now snippy people answer the phones and give confusing and contradictory answers. Users gripe about customer service, and outages are now part of Net industry lore. It wasn't that surprising, after all, when Monday's Webcast ended abruptly, as

Aaron Task

reported that evening. A publicist told him -- erroneously, it turns out -- the outage was unplanned.

Wags said eBay never could grow into its valuation. Untrue. It has. eBay has begun behaving just like other $12.5 billion-dollar companies: arrogantly.

We're not talking about fundamentals here. A company worth billions but that has quarterly revenue of $49.5 million and "consolidated net income excluding the effects of noncash and one-time merger-related charges" of $5.1 million doesn't trade on fundamentals. (Alas, eBay has joined its fellow Netizens whose pro-forma-but-for-this-and-that reporting would make an accounting professor cringe.)

We're talking about perception. So when eBay cuts off its conference call just as the question-and-answer session is cranking up, the great unwashed (reporters, eBay employees, even investors who find the Web more convenient) perceive an arrogant company with something to hide.

An eBay spokesman says the company simply is following "standard industry practice" in closing the Q&A to the public. A spokeswoman for

Yahoo! Broadcast Services

, formerly

Broadcast.com

, says otherwise: Standard practice for Broadcast.com's "hundreds" of customers, she says, is to Webcast the entire call.

"eBay's gonna do what eBay's gotta do, and we believe it is doing and will do the right thing," the quotable Mary Meeker of

Morgan Stanley Dean Witter

told clients Tuesday. She was referring to eBay's aggressive spending on marketing, technology and developing its newly acquired businesses.

But eBay, which couldn't pry free an executive Tuesday to chat about the quarter, increasingly will find it is judged not as last year's favorite but just like everyone else.

What's in a 'Tracker'? Ask Microsoft Shareholders

Writing about tracking stocks seems to provoke more questions than answers.

With

Microsoft's

(MSFT) - Get Report

proposed "tracker," current shareholders likely would reap tangible benefits. The company isn't talking about the tracker until its top executives make up their mind what to do, so it's impossible to describe a tracking stock that doesn't yet exist. But based on chats in the hallways at the company's analyst day last week and informal feedback from Microsoft, here's what shareholders might be able to expect.

Because Microsoft already owns all its Internet assets, if it were to do a tracking stock it would place them out in a separate company that Microsoft would continue to own. Revenue, expenses and, therefore, losses, would shift to the dot-com, raising Microsoft's earnings, but lowering its share count. Microsoft shareholders likely would receive shares in the dot-com in a tax-free distribution.

That's different from what

General Electric

(GE) - Get Report

is

planning when GE's

NBC

unit,

Xoom.com

(XMCM)

and

Snap.com

combine certain interests to form

NBC Internet

. Short answer on what's in it for GE shareholders: not much, other than GE's piece of a potentially valuable dot-com stock after having traded in just a few million dollars in revenue. The only way to get NBCi stock now is to own Xoom.com, which will morph into NBCi after the merger.

The dot-com story for Microsoft's shareholders could be considerably rosier.

Of Run Rates, Receivables and Revenue

Most people in most circumstances use revenue and sales interchangeably. And most of the time that's OK. But when it comes to a software company, like

Network Associates

(NETA)

, one needs to be careful with the lingo.

An

item here Friday about the Santa Clara, Calif.-based company, which makes software that protects networks and computers from viruses and other maladies, unfairly characterized it as having a $100 million run rate because it recorded $25 million in revenue in the second quarter.

Network Associates' second-quarter revenue was $25 million, but that's because it was unstuffing a distribution channel of already sold software.

Bookings

for the quarter, which the company discussed on its July 22 conference call but not in its press release, were about $200 million. This means that although the company recognized revenue of $25 million, it wrote orders for sales of nearly nine times that.

Lehman Brothers

estimates the company will record revenue for 1999 of about $681 million. That's a far cry from the former billion-dollar goal, but far more than the $100-million jab in this space Friday.

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. 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. Lashinsky writes a monthly column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

alashinsky@thestreet.com.