Tech-happy investors showed little love for

eBay

(EBAY) - Get Report

on Thursday, a day after it beat the Street's consensus estimates by 2 cents a share. The stock was off 12 cents to $32.99 recently as traders shrugged off a higher-than-expected first-quarter profit.

In January, when eBay fell a penny short of expectations, the stock plummeted 19% in one day and steadily deteriorated. At its low point Thursday, when it was down nearly 6%, eBay's stock had lost 36% of its value this year.

The continued cautious mood seemed to be summed up in a research note by Deutsche Bank analyst Jeetil Patel, who argued that "headwinds persist" -- a fancy way of saying revenue growth at the company is continuing to decelerate at a disconcerting rate.

Patel maintained his hold rating on the stock and lowered his price target for the stock to $35 from $40. One reason for the concern is that eBay's higher guidance for 2005 was not high enough to imply "material improvement in the outlook in 2005."

"The stock may remain quite choppy through the summer months as investors revisit listings trends," Patel said. "While we are encouraged that eBay managed marketing expenses quite well in 1Q, we continue to believe that the underlying metrics continue to experience decelerating growth, a trend that has now persisted since the fourth quarter of 2004."

eBay posted a first-quarter profit of $256.3 million, or 19 cents a share, on a 36% rise in revenue to $1.03 billion. The Street had expected 17 cents a share profit on $1.03 billion in sales. A year ago, eBay posted a profit of 15 cents a share on net revenue of $756 million.

Characteristic of eBay's first-quarter report was its performance in operating margin, a number that analysts previously pointed to as symbolic of the deterioration in the company's overall financial performance. eBay's operating margins in the first quarter rebounded to 32.5% from the fourth-quarter margin of 30.4% but that number was still below the year-ago margin of 35.2%, giving some idea of just how much further eBay needs to go to win back the confidence of its former fans like Patel.

The company guided its 2005 consolidated net revenue to between $4.27 billion and $4.36 billion and its GAAP earnings per share to between 71 cents and 73 cents. Previously, eBay said net revenue would be between $4.25 billion and $4.35 billion and EPS would be between 68 cents and 70 cents. For the second quarter, eBay says consolidated net revenue will be between $1.025 billion and $1.05 billion and GAAP EPS would be 16 cents.

In his analyst report, Patel also said that slower growth in the company's two largest and most mature markets -- the U.S. and Germany -- is significant enough that it could cause the company's overall growth to come in below the Street's expectations. "This theme of slowing growth may represent the key ongoing area of investor attention in future quarters," he said.

The 36% growth in revenue is below the 43% growth rate in the previous quarter and the 59% growth rate for the year-ago quarter. In its U.S. auction and marketplace business, which accounts for 38% of eBay's overall revenue, the revenue growth rate of 19% on year in the first quarter was less then half the 39% rate that eBay enjoyed in the first quarter of 2004, and the first time that figure had dipped below 20%.

Part of that slowdown came as increasingly disenchanted eBay sellers staged boycotts and raised a ruckus in January over rising fees, and eBay took pains Wednesday to show that its actions later in the quarter allowed U.S. sales to recover.

Other analysts picked up on that late recovery in U.S. transactions. "Sellers appeared to return to the platform later in the quarter after eBay implemented several initiatives to lure sellers back, including community meetings and promotions," wrote Anthony Noto of Goldman Sachs, which has an underwriting relationship with eBay.

"The U.S. business is accelerating following a slowdown in the first half of the first quarter," Noto says. "The U.S. business is now bucking the seasonal trend with faster y/y growth thus far in the second quarter."

But as confident as Noto sounded in eBay's core domestic market, he wasn't bullish on the stock, which he expected to find support at its current trading levels but not rally appreciably. Until the U.S. market can show a sustained recovery and the international business delivers stable and solid growth, Noto said, "our view is to stay around the hoop and be opportunistic."