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Stock Analyst Update

EBay Exudes Confidence in Bullish Meeting

Company sees 50% annual growth and fat margins by 2005.

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What Happened?
Internet auctioneer eBay (EBAY) held its annual analyst meeting Wednesday morning, using the occasion to issue some optimistic forecasts for the company. Officials projected that eBay's revenue will grow 50% annually to $3 billion by 2005, nearly 10 times its current annual rate. They also said that gross margins will rise to 85% and operating margins to 30%, from 76% and 9%, respectively.

What It Means for Investors
It won't be easy to meet those bullish projections, given the inherent uncertainty of the fast-changing Internet, but we think that if any online company is capable of doing so, it's eBay. It's been one of the few consistently profitable Internet firms, and has maintained its leading position in online auctions while successfully moving into Europe and expanding its offerings to include higher-end items.

To meet its lofty growth projections, eBay will have to continue its current expansion plans while finding additional new markets, but that's at least a plausible scenario, given the firm's track record so far. The profitability projections are even closer to reality, since eBay's gross margin is already near the target, and its operating margin improved from 1% to 9% in the most recent quarter. The main risk is valuation, since eBay is expensive by just about any standard. But even if the specific numbers end up being a little off from these predictions, we think eBay is one of the best Internet stocks to own for the long term.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.