eBay Talks Algorithms

The auction site tells investors it's bringing more shoppers in.
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Chief Executive Meg Whitman promised Thursday that better times are coming for the largest Internet auctioneer, but she stopped short of boosting what Wall Street sees as the company's conservative guidance for 2006.

"We plan to grow our revenues even faster and gain share in our addressable markets,"


reports Whitman saying.

Wall Street shrugged off the optimistic presentations Whitman and her management team gave at Thursday's analyst meeting. Shares of the San Jose, Calif.-based company, down 21% this year, barely budged, edging up 16 cents to $34.33.

eBay is looking for ways to fight the growing competitive threat from Google, including a potential alliance with either





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, according to a report last month in

The Wall Street Journal

. Analysts are worried that a payment system being developed by Google will take business away from eBay's lucrative PayPal unit. Both companies have downplayed such talk.

"The risk profile is increasing at eBay, with increased competition, dependence on online ads to grow, and a re-acceleration in growth expected in 2007," writes Deutsche Bank analyst Jeetil Patel, who has a hold rating on the stock, in a recent report. "Our fundamental concern on higher advertising rates is the reason for maintaining our rating."

Speculation about an anti-Google alliance puts eBay in an uncomfortable position, since it is also one of the largest buyers of keyword advertising in the search market. In fact, eBay is currently buying about 20 times the amount of keyword ads than it has in the past, though it spends less per ad than it used to, according to Bill Cobb, the head of eBay's U.S. business.

"We have put the major search-engine algorthims under a microscope," he says. "All of this science enables us to bring more shoppers to eBay."

eBay is betting that the combination of its main sites, PayPal and the recently acquired Skype Internet phone service will help boost growth prospects. Investors have questioned whether the $2.6 billion price tag for Skype was too steep.

Though eBay's growth is slowing, it's still pretty healthy. The revenue forecast that Whitman reiterated -- $5.7 billion to $5.9 billion -- represents about a 30% increase. eBay still gets a huge amount of traffic to its sites, surpassing rivals including


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. Investors also are optimistic about eBay Express, the company's new fixed-priced goods Web site.

"By any measure, it's accurate to assert that eBay has the most valuable franchise in the U.S.," says eBay's Cobb. "Our traffic is unparalleled."

eBay is holding off a major promotion for eBay Express until the back-to-school season in the fall so that the bugs can be worked out. The feature currently is only available in the U.S., but is scheduled to be rolled out in other markets eventually.