eBay's (EBAY) chief executive Meg Whitman appeared to get a break from Wall Street's criticism on Sept. 26, after Goldman Sachs published a report that supported her growth strategy for the online auction company. But the applause was candy coating over a sour center: a reduction in the firm's price target on the online auctioneer's stock.
"Investments in the first half of the year as well as initiatives in the third quarter of 2006 are positioning the company for a solid fourth quarter," analyst Anthony Noto said in a research note Sept. 25. The analyst mentioned recent efforts such as eBay's U.S. advertising deal with the Internet search giant Yahoo! (YHOO) in May. He also noted that Skype, an Internet communications company that eBay acquired last year, is enabling new growth areas including pay-per-call and the international adoption of eBay's online payments business unit PayPal.
When investors considered the news on Sept. 26, they appear to have focused on the analyst’s positive comments and not the price cut. On Sept. 26, eBay's stock price surged 4.6% to $27.43 per share in afternoon trading on the Nasdaq market. It's a bright moment for the Internet company, whose stock price has plunged from a 52 week high of $47.86 on Jan 19. Investors have worried about the number of items eBay has listed for sale. They've criticized Whitman, for example, about the way that she has drummed up business abroad. In markets such as China, competition has forced Whitman to slash or eliminate the fees she charges her listings customers, backing her into a corner where advertising is crucial for driving revenue.
Goldman said on Sept. 25 that it expects eBay to have 599 million online product listings during the second quarter of 2006, representing a 31% year-over-year increase. Previously, Goldman had estimated a 34% year-over-year gain to 615 million. Goldman says it isn't concerned about a decline in listings, given factors such as potential improvement in the supply of value-priced merchandise on the site. (Goldman has received compensation from eBay for investment banking services during the past year, among other things.)
Noto also slashed his 12 month target on the stock price to $35 per share from $54, explaining that the market needs longer than two quarters to believe in the growth rate for eBay that Goldman expects. But the analyst continues maintaining that eBay has intrinsic value of more than $50 per share.
Time will tell whether Goldman -- and more importantly, Whitman -- have got it right.