eBay ( EBAY) shareholders' proxy proposal votes will be announced later this week. But institutional investors have already been voting with their pocket books.

In the first quarter, more than 200 institutional investors -- mutual, index and pension funds -- either bought into eBay or increased their stakes in the online auctioneer, according to FactSet Research Systems' LionShares site. The net holdings in eBay of such investors increased in the first quarter by about 11.8 million shares, a stake that is now worth about $1.2 billion.

Much of the buying appears to have come from index funds that bought up eBay stock as it soared compared with the rest of the Nasdaq 100. But some also seems to have come from portfolio managers eager to pick up an Internet winner.

Forget about the company's sky-high valuation or its profligate use of stock options, analysts say. Investors are ignoring anything negative about eBay right now, they say.

"Given that you are running a large mutual fund and you want to keep your foot in the door of the Internet business, eBay is one of the few companies that has been successful in that arena," said Paul McEntire, portfolio manager of Skye Investment Advisors' Marketocracy Technology Plus Fund ( TPFQX). "People aren't given a lot of great choices in that area." (McEntire's fund does not have a position in eBay.)

The company's proposal to increase the number of options it can grant by more than 50% has drawn criticism from proxy advisor Glass Lewis and the California Public Employees Retirement System , which plans to vote against it. Other big shareholders such as Fidelity and Vanguard could also vote against the plan, if they follow their proxy voting guidelines.

Do I Hear $103?
Institutional investors that bought the most eBay shares in the first quarter
Institutional Holder Shares held, end Q1 Shares bought since Q4 '02 Percentage Stake in eBay Portion bought in Q1
Marsico Capital Management LLC 4,487,342 4,487,342 1.4% 100.0%
TCW Asset Management Co. 8,156,898 3,559,292 2.6 43.6
Fidelity Management & Research Co. 8,883,653 3,243,811 2.8 36.5
Barclays Global Investors, N.A. 8,522,531 2,007,112 2.7 23.6
Northern Trust Global Investments 2,906,788 1,395,365 0.9 48.0
Morgan Stanley Investment Management (NY) 4,927,179 1,095,799 1.6 22.2
Merrill Lynch Asset Management, Inc. 1,428,768 903,717 0.5 63.3
ING Investments, Inc. 935,913 744,743 0.3 79.6
Jennison Associates LLC 840,200 742,700 0.3 88.4
ING Aeltus Investment Management, Inc. 861,046 710,041 0.3 82.5
Source: FactSet Research Systems' LionShares.

Sticking With a Winner

But other institutional investors could be reluctant to rock the boat. eBay's stock climbed nearly 26% in the first quarter alone and has jumped more than 50% year to date. Meanwhile, the company has continuously reported soaring revenue and record earnings, albeit not including the cost of stock options.

At the end of the first quarter, the last period for which figures are available, institutional investors held about 58% of eBay stock, up from about 55% at the end of the previous quarter, according to LionShares' data. During the first quarter, 10 of the top 15 institutional shareholders in eBay upped their stakes, according to LionShares.

Much of that buying likely came from index funds. Index funds hold stock in the same proportion as a particular stock index. If a company's stock price increases faster than the overall index, index funds have to buy up that stock in order to keep its value in the same proportion with the index.

Although eBay's stock shot up in the first quarter, the Nasdaq 100 index, of which it is a part, grew just 3.6%. At the end of the quarter, eBay comprised 2.53% of the Nasdaq 100 index, up from 2.06% at the end of last year.

Barclays Global Investors was among those that increased its eBay bet largely because of its representation in the Nasdaq 100. Barclay's, which holds the fifth-largest stake in eBay among institutions, bought 2 million eBay shares in the first quarter, according to LionShares. Most of Barclay's eBay shares are held in index funds, said company spokeswoman Kerry Steele. Overall, of the $746 billion in assets that Barclay's manages, about 73% are index funds, Steele said.

"We don't have an opinion on eBay because most of our active funds don't hold it," she said.

But not all institutions needed the excuse that eBay was part of an index to buy eBay shares.

Marsico Capital Management, for instance, bought all 4.5 million of its eBay shares in the first quarter, according to LionShares. A company spokesperson declined to comment on Marsico's eBay stake, but said that all of the Marsico holdings are in actively managed funds.

Fidelity and TCW Asset Management also had actively managed funds that upped their eBay investments in the first quarter. Fidelity, for instance, the institution with the fourth-largest eBay stake, purchased 3.2 million shares in the quarter. Meanwhile, TCW Asset Management, the sixth-largest eBay stakeholder, purchased another 3.6 million shares.

TCW's flagship portfolio bought into eBay in the last year, helping increase the company's overall stake, said Mike Utley, a TCW spokesman. Utley did not say why the company bought into eBay. The research analyst who covers eBay for TCW was not immediately available for comment.

Fidelity does not talk about individual stocks within its portfolio, a company spokesperson said.

Some Sold

Not all institutions bought eBay stock in the quarter. Some 34 institutions sold their entire eBay stakes -- about 1.9 million shares -- in the first quarter, according to data from LionShares. Another 164 institutions sold parts of their eBay holdings -- some 17.2 million shares.

Janus was the big seller of eBay shares among institutional investors, selling off nearly 3 million shares in the quarter, decreasing its stake to 12.8 million, according to LionShares. All of Janus' funds are actively managed, said Jeff Snyder, a company spokesman. Snyder declined to comment on why Janus sold its shares.

eBay's valuation could be a part of the reason for the selling. The company's stock is now trading at about 70 times its projected 2003 earnings, not including the cost of stock options.

Many of the institutional holders are technology funds that have held the stock for years, said one portfolio manager who asked not to be named. As the stock jumped late last year and early this year, many sold off parts of their holdings, the portfolio manager said.

"They are all kicking themselves for selling as early as they did," the portfolio manager said.

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