EBay wavers after 4Q report

NEW YORK

Shares of online auctioneer eBay Inc. rose Wednesday ahead of its fourth-quarter report, as a Stifel Nicolaus & Co. analyst called the stock his "best short-term idea" -- but retreated in after-hours trading after the report's release.

EBay shares rose $1.81, 6.7 percent, to close at $28.94 in advance of the earnings report and before Chief Executive Meg Whitman announced she would soon step down. In extended trading, the stock initially rose but then retreated to $27.50.

The stock hit a 52-week low of $26.02 on Tuesday, as fears of a recession hurt stocks around the globe, despite a decision by the U.S. Federal Reserve to cut the federal funds rate by three-quarters of a percentage point to 3.5 percent.

In a client note Wednesday, Stifel Nicolaus analyst Scott Devitt said that though eBay is losing e-commerce market share, its competitive position is stabilizing in core areas including liquidation inventory, collectibles and difficult-to-find items, he said.

"While (Amazon.com Inc.) is our best long-term idea, eBay is our best short-term idea," Devitt said.

Devitt, who reiterated his "Buy" rating and $39 price target, also noted eBay's ability to generate free cash flow. He said eBay has bought back $2.8 billion of stock since June 2006, and could repurchase $9 billion in stock during the next two years.

By way of comparison, Devitt noted that eBay generates $6 in gross merchandise volume for every $1 in assets, while Target Corp. generates $1.50 in gross merchandise volume for every $1 in assets.

On Wednesday, eBay reported a 53 percent gain in fourth-quarter profits due to a strong holiday season. It beat Wall Street's expectations, though its future guidance was tepid.

The San Jose-based company said that in the last three months of 2007, it earned $530.9 million, or 39 cents per share. In the same period a year earlier, eBay earned $346.5 million, 25 cents per share.

Analysts surveyed by Thomson Financial had been expecting eBay to earn 41 cents per share. EBay also exceeded Wall Street's revenue projection of $2.14 billion.

Whitman said she was pleased with the results, which ended "a remarkably strong year."

from businessweek