EBay Shares Drop 19%

EBay Inc.’s shares plunged 19% on Thursday, a day after the online auction giant’s quarterly earnings fell short of Wall Street’s expectations for the first time ever.

Besides missing analysts’ consensus profit projection -- by a penny a share -- the San Jose company also cut its earnings forecast for 2005.

EBay’s stock plunged $19.72 to $83.33 on Nasdaq, its steepest one-day percentage decline since November 2000. The company went public in September 1998.

It was almost as if investors were waiting for the slightest excuse to dump their shares.

“As good as the business model was, I thought it was too expensive” as a stock, said Martin Pyykkonen, an analyst at investment bank Janco Partners.

Others agreed.

In reports with such titles as “A Few Chinks in the Armor” and “Losing Near-Term Mojo,” analysts questioned whether the company’s shrunken profit outlook and earnings miss were blips in an otherwise stellar run -- or a sign that EBay’s growth was sharply decelerating.

EBay has been one of the market’s biggest stars of this decade.

Although the shares dived 47% in 2000 -- when the dot-com bubble burst -- they rose in 2001 and 2002, even as the rest of the Internet sector continued to tumble. And the company’s stock rocketed in 2003 and 2004, far outpacing the rest of the market.

In all, the stock gained 272% from the end of 1999 to the end of 2004, compared with a loss of 47% for the technology-dominated Nasdaq composite index.

EBay still cranks out profit. It earned $205.4 million, or 30 cents a share, in the fourth quarter, a 44% jump. Revenue also rose 44% to $935.8 million. Full-year profit soared 76% to $778.2 million.

But slowing growth in EBay’s two biggest markets, the United States and Germany, spooked some analysts.

Whether the fourth-quarter slowdown “was a one-time event or indicative of increasingly difficult structural issues facing EBay will not be known with certainty for at least another quarter or two,” wrote Safa Rashtchy, an analyst with Piper Jaffray, who lowered his stock rating to “market perform” from “outperform.”

EBay spokesman Hani Durzy said, “We were very pleased with the final quarter of what we thought was an exceptional year.”

Yet analysts had been more bullish on the company’s prospects for 2005, forecasting a profit that was almost a dime a share more than what EBay said Wednesday to expect.

If EBay’s 2005 earnings hit the low end of the target range the company gave Wednesday -- $1.37 a share -- they would be up 20% from the $1.14 a share earned last year.

By contrast, the average blue-chip company is expected to post earnings growth of 10.5% this year, based on analysts’ estimates compiled by Thomson First Call.

Investors typically are willing to pay more, relative to underlying earnings, for shares of faster-growing companies. But even at its sharply lower price of $83.33, EBay’s stock is valued at 61 times this year’s estimated earnings.

That is more than three times the average blue-chip stock’s price-to-earnings ratio of 17, for a company that is growing about twice as fast.