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Fans Bid Adieu to eBay

The stock sells off despite Wall Street's protestations.



shareholders look to be in for a long, hot summer.

Wall Street is annoyed that the largest Internet auction site failed to beat first-quarter targets or raise 2006 earnings guidance Wednesday. Investors expressed their displeasure Thursday morning by selling the stock en masse, pushing eBay shares down 7.5%.

The optimism that led five analysts to boost their earnings estimates for eBay in the past month has cooled, and the chill spread to rival


. The online retailer, which is due to post first-quarter results Tuesday, dropped 1%.

"We are lowering our estimates and price target, due to series of deteriorating metrics (slowing GMV/transaction growth), miscalculated strategies (on lower fee store listings onto the core business), and weak current business trends (in the US and UK)," writes Deutsche Bank analyst Jeetil Patel, who reiterated his hold rating on eBay. GMV refers to gross merchandise volume, the value of all goods sold on eBay.

Patel slashed his earnings and revenue estimates for both the second quarter and the year. He now expects second-quarter profit of 22 cents compared with 23 cents previously, on revenue of $1.37 billion, down from an earlier projection of $1.39 billion. Patel also chopped $5 off his $40 price target.

Still, not everyone was bearish.

"The days of unlimited stock upside and earnings outperformance are behind the company, but we think the merits of the investment still exist for long-term investors," writes Scott Devitt, an analyst with Stifel Nicolaus who reiterated his buy rating on eBay but lowered his price target to $45 from $48. Stifel Nicolaus makes a market in the shares.

The shadow of



continues to haunt eBay. Though both companies downplay such talk, Wall Street views Google's plans to develop a payment system through its free listing service Google Base as a potential threat to eBay's lucrative PayPal business.

"They are already starting to integrate some of the listings for Base into the broader Google search engine," says RBC Capital Markets analyst Jordan Rohan, who reduced his rating from outperform to sector perform and slashed his 2006 and 2007 estimates, in an interview. "It's enabling some retailers at the margins to become more self-sufficient and less reliant on eBay."RBC Capital Markets has provided non-investment banking services to eBay.

Cowen & Co. analyst Jim Friedland says he expects the company to generate $1.9 billion in cash flow minus capital expenditures this year. eBay will end the year with $5 billion in cash and no debt, he says.

"Given the low probability of sizable acquisitions in the future, we expect the company to initiate a stock buyback plan within the next year," Friedland writes in a note. He maintained his neutral rating on the shares. His firm makes a market in eBay shares.

Investors will be closely monitoring next week's launch of eBay Express, a site that will feature only fixed-price goods. eBay Chief Executive Meg Whitman said that reaction to the new site has been positive.

"We think that 2006 will be defined by the launch of eBay Express," writes Bear Stearns analyst Robert Peck, who rates the company peer perform, in a note. "While financial implications to eBay may be minor at first, eBay Express marks the company's attempt to diversify further away from auctions into traditional e-commerce."

Bear has done non-investment banking business for eBay in the past 12 months.

On Thursday, eBay fell $3.02 to $37.33.