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Stock Analyst Update

EBay Looks A-OK

Profits and growth are stronger than ever for the Internet blue chip.

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What Happened?
Online auctioneer eBay (EBAY) continues to rise above its dot-com competitors, once again surpassing Wall Street expectations across the board. The company reported Thursday that its fourth-quarter revenue was $134 million, well above Wall Street consensus estimates of $126 million, and that its earnings came in at $0.09 a share, $0.02 better than First Call estimates. The company improved across virtually all important metrics, boosting its gross margin to 82% (versus 71% a year ago) and its net margin to 18% (versus 5% a year ago). Its user base grew to 22.5 million, putting it in the same league with online giants Amazon.com (AMZN) and AOL (AOL).

What It Means for Investors
These stellar results reinforce our opinion that eBay is a great company that's only getting stronger, and it's one of the few Internet stocks worth owning. Not only is it more profitable than most brick-and-mortar firms, it's still growing at a breakneck pace even as many dot-coms face revenue shortfalls. In Thursday's conference call, CFO Gary Bengier raised his revenue guidance for 2001 to $665 million, which would represent a 54% increase over 2000. The company has not been affected by the online advertising slowdown that has decimated stocks such as Yahoo (YHOO), nor by the retail spending pullback that has hurt Amazon's sales. In fact, CEO Meg Whitman suggested that a recession could even help eBay, as more sellers raise money by selling extra things and more buyers look for values through online auctions.

The company has done a good job of expanding beyond its origins as a site for collectibles, an expansion that is crucial for its long-term growth. Its auto site appears to be doing quite well, and Half.com, which eBay acquired last summer, has 10 million listings after only a year in operation. Revenues from the Billpoint online payment system grew 145% between the third and fourth quarters after rival Paypal began charging its users. And eBay's overseas sites have continued their healthy growth, with more new sites planned for 2001. While a lot can still happen, eBay has so far executed its plans flawlessly in a tough environment, and we still like the stock despite its 80% rise since the beginning of the year.

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