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About-Face at eBay

Fans really like the conservative guidance, it turns out.

Investors did an about-face on


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Thursday, sending the stock up as Wall Street rushed to backstop management's low-key guidance.

The San Jose, Calif., auction giant initially disappointed its many fans late Wednesday by largely reiterating its earnings and sales guidance from October. Bullish analysts had spent the intervening months boosting their own targets, leaving eBay's projections looking tepid. The discrepancy, and eBay's failure to guide higher, led to a 5% selloff in after-hours action Wednesday.

But Thursday brought a whole different story, as investors sent the stock up 5%. Wall Street analysts sang the praises of the company's growth story, even if management isn't backing their more bullish forecasts just yet. The eBay revival came even as fellow tech titan


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sagged 4% under the weight of its own earnings disappointment.

"We believe that guidance is overly conservative and recommend buying on weakness," writes Citigroup analyst Mark Mahaney, who rates eBay buy, in a note to clients. "All signs indicate continued secular growth for e-commerce and eBay is the market leader."

Mahaney, whose firm has done non-investment banking work in the past 12 months for eBay, raised his pro forma earnings estimate for the year to $1.04 per share from $1.03. That's above eBay's guidance of 96 cents to $1.01 per share. He also boosted his target price for the shares from $49 to $52.

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San Jose. Calif-based eBay beat fourth-quarter estimates, with pro forma profit of 24 cents a share on revenue of $1.33 billion. eBay also said it expects to make just under a dollar a share on a pro forma basis on sales of $5.8 billion for 2006, where analysts were expecting a $1.02-a-share pro forma profit on sales of $5.9 billion.

Fourth-quarter results heartened Goldman Sachs analyst Anthony Noto, whose firm has received investment banking services from eBay in the past 12 months ago. He rates the shares outperform.

"Accelerating trends in the fourth quarter in both the U.S.and international businesses reinforce our positive view of eBay shares," he writes.  "We still see 25% + upside to our $54 implied value."

In an interview, Chief Financial Officer Rajiv Dutta said that the company didn't update guidance because it wanted to "get some visibility" on how eBay's businesses were performing. Dutta will head the company's Skype unit, which investors are watching closely to see how it is integrated into the rest of eBay's operations. eBay is expected to name a replacement for Dutta in the next few weeks.

"We have a very bullish outlook on the business," Dutta said during Wednesday's earnings conference call.

Analyst Scott Devitt of Stifel Nicolaus, who earlier this week cut


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to sell, is more cautious than his competitors.

In his note to clients, Devitt notes that the company faces challenges this year. He cut his price target from $50 to $48.

"We rate eBay shares buy because we trust management's ability to allocate capital given its historical success in that endeavor," he writes. "We believe the company faces execution risk in 2006 related to the acquisition of Skype, and VeriSign merchant that, when combined with a 20% organic revenue guidance causes us to be less positive on eBay than otherwise."

Shares of eBay, which also is the most visited e-commerce site, rose $1.86 to $46.30.