September 24, 1998 3:40 PM PDT

eBay roars into public trading

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Online auctioneer eBay bolted out of the starting gate on its first day of public trading by nearly tripling its share price, ending a month-long IPO dry spell.

Shares of eBay went up 163.2 percent to close at 47.375 today, up 29.375 from its target price of $18 a share.

The stock's opening price of 53.50 per share soared far above its target price. Wall Street had expected a strong performance from the IPO after eBay's underwriters yesterday afternoon priced the deal at the high end of its increased pricing range.

With its IPO, eBay raised $63 million by floating out 3.5 million shares. Based on the company's 39.7 million outstanding shares and its share price at the close of the day, the company's market cap hit nearly than $1.9 billion. Competitor Onsale's market cap was $350.4 million at the close of market today.

eBay's gains today far exceeded those of community builder GeoCities, which closed up 94 percent on its first day of trading. But it fell short of Broadcast.com, which closed up nearly 250 percent on its first day of trading.

Charles Finnie, managing director with Volpe Brown Whelan, said that, given the ratio of eBay's gross profits in relation to where its stock was trading this morning, Onsale may be a better buy right now. He noted that eBay was trading at 155 times its gross profits, while Onsale was trading at 35 times its gross profits.

"Onsale is looking dirt cheap to me," Finnie said. "And their fundamentals are getting better as we speak."

Finnie added, however, that eBay has unlocked a new market for person-to-person e-commerce and said that its business has the potential to grow into a global operation. He noted that, unlike consumers who use newspaper classified sections for local person-to-person transactions, eBay users have the potential of finding buyers for their goods overseas.

Finnie said also that, while Onsale and Yahoo recently announced plans to team up to offer person-to-person auctions similar to those hosted by eBay, the market for online auctions is large enough to accommodate two major players.

eBay's strong performance today comes amid a highly volatile market during the past several weeks, and zero IPOs during the last month. IPO watchers note that a dry spell of this duration has not been seen since 1985.

But eBay's ability to move forward with its IPO was not enough to keep other Internet companies from delaying their IPO plans. For example, Value America, another player in the Internet commerce space, yesterday said it would delay its IPO due to "market conditions prevailing for IPOs."

In early July, amid a much brighter mood on Wall Street, the Charlottesville, Virginia, Internet retailer had registered to sell 5 million shares of stock. Unlike eBay, however, Value America has yet to turn a profit.

"The jury is still out on if this will generate another tech IPO frenzy," said Richard Peterson, an IPO analyst with Securities Data. "There's still [economic] uncertainty here at home and abroad."

Given that it has been a month since any company has floated out an IPO, he added, there may be pent-up demand among investors to take a stake in a tech issue.

But the pipeline for more public issues is pretty narrow, Peterson said. So far this month, only 27 companies have filed for an IPO, of which four are tech companies. Peterson said the two dozen or so pending IPOs is an "extraordinary" low number.

Analysts generally were impressed by eBay's early profitability, and by its willingness to hit the public trough during an especially volatile market.

"It's an incredibly bold statement by all parties involved," said David Menlow, president of IPO Financial Network. "There is no hype here. This is a solid company that is profitable, and that is atypical for virtually every other Internet company out there."

About 500,000 items are available on eBay each day in about 1,000 categories that range from antiques to sporting equipment to dolls and figurines. The company makes its money by charging sellers a placement fee of between 25 cents and $2 per item and a commission fee of between 1.25 percent and 5 percent of the selling price.

During the first six months of 1998, the company reported profits of $348,000 on revenues of $14.9 million. The company also posted a $874,000 profit for the same period a year ago.

 

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