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Online Auctioneer Draws Sky-High Bids

Internet: Investors currently value tiny EBay at $8.2 billion. Bulls are excited about its niche, but so are its multiplying competitors.


The world's largest swap meet now has a market valuation larger than Toys R Us and Neiman Marcus combined, with more than a billion to spare.

Like a hard-to-find Furby, the stock of San Jose-based EBay Inc. has been bid up and up in the last seven weeks, closing Wednesday at $204.50 on Nasdaq, giving the pioneer in person-to-person online auctions a market capitalization of $8.2 billion.

On Oct. 8, the stock changed hands at $29.

"The market has fallen in love with EBay," said Phil Leigh, an analyst with Raymond James Financial.

"Most investors are now beginning to get the idea that the Internet is not just a technology, but an emergent form of a new media, and likely the dominant media in the future," Leigh said. "To the average investor, the Internet was still something amorphous--a big, amorphous field of opportunity, but not very well comprehended. But now, as we enter the Christmas selling season, it's not going to be out of the ordinary for friends to be making purchases over the Internet."

Even for an Internet stock, a sector with which the stock market has been particularly generous, EBay is being traded at extremely lofty levels. The company's shares now trade at more than 100 times its book value, which is the value of its assets minus its liabilities.

The same ratio for Yahoo Inc., an EBay competitor with a much stronger brand and higher profile, is 47, and online bookseller Inc., another spectacular success story, has a price-to-book ratio of 62.

"People are just getting caught up in the frenzy," said Jay Somaney, an analyst with Loewenbaum & Co. "There's absolutely no doubt that the Internet is going to be bigger than even what people had forecast it to be, but people are losing sight of the fact that even on the Internet there has to be some rationale and justification for paying a certain price for a stock."

EBay made its initial public stock offering in September, when Internet stocks were in the dumps. The company was heralded as a welcome rarity: a profitable Internet company. The offering was a hit, closing its first day of trading at $47.38, up from an offering price of $18.

Now the market for technology stocks has firmed significantly, and EBay continues to ride the wave. Many other online retail stocks, such as Amazon and music sellers CDnow Inc. and N2K Inc., also have had a boost this week.

Riding on EBay's coattails has been Menlo Park, Calif.-based Onsale Inc., another online auction company. Its stock traded as low as $12.50 last month and ended last week at $27. But on Wednesday, Onsale closed at $60 on Nasdaq. Analysts attributed the surge to the enthusiasm surrounding EBay and the entire online auction business.

While Onsale has a story similar to EBay's, they are more like distant cousins than sibling rivals. Unlike EBay, which offers a Web site where people can auction off their goods, taking a fee for facilitating the transaction, Onsale auctions off computers, consumer electronics, and home appliances that they actually have in stock.

EBay, which had revenue in 1997 of $5.7 million, has the potential to take over the role of classified advertising in the online world, but analysts point out that competition lurks around every corner.

Yahoo, the online directory that has morphed into an electronic-commerce leader, offers free online auctions, making money not on transactions but advertising revenue. Rival Web portal Excite Inc. also has a classified advertising division, Classifieds2000, which offers online auctions.

Even newspapers have joined together to offer online classifieds and person-to-person auctions through Chicago-based Classified Ventures. The Los Angeles Times' parent company, Times Mirror Co., is one of eight newspaper companies that partnered to form Classified Ventures.

"People should not discount the fact that Yahoo is going after EBay, and they're not a company you can trifle with," Somaney said. "A lot has been made of EBay being profitable, but they're going to have to ramp up the marketing soon, and that can quickly make a big dent in those small profits."

EBay's Boom

The stock of San Jose-based EBay quickly vaulted to lofty levels after its initial public offering in September. Shares of the Internet company, which offers person-to-person online auctions, now trade at more than 100 times book value.

Wednesday close: $204.50

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