eBay Nears 2005 Goals

[Note: This column was updated Oct. 14 to show PayPal sales.]

More than three years ago, on Sept. 20, 2000, eBay (Nasdaq: EBAY  ) surprised the world and propelled its stock by announcing growth projections through the year 2005.

Today, with 2004 less than three months away, it's becoming apparent that the much-criticized goals made by Meg Whitman and company -- criticized for being too aggressive, too specific, and too long ranging -- are likely to come to fruition. In fact, eBay could top its 2005 goals.

The main goal was $3 billion in yearly revenue by the end of 2005, along with 30% to 35% operating margins and gross margins above 80%. Having only $400 million in annual sales at the time, the revenue goal suggested 50% annualized growth from the end of 2000 to the start of 2006.

In the first six months of 2003, the company's revenue was $985 million, en route to an estimated $2.1 billion this year. About $400 million of these sales will be PayPal, and should be backed out, giving us $1.7 billion. Forty percent growth from that level would put eBay-only sales at $2.38 billion in 2004 (the current analyst estimate for company-wide sales is $2.9 billion). From $2.38 billion, the company needs 30% sales growth to see sales above $3 billion in 2005. That should not be too difficult.

As to other goals: eBay's operating margin was 30% last quarter, trending higher and already reaching the company's long-term plan, as does gross margin, which topped 80%. eBay also wanted to operate in 25 countries by the end of 2005; today, it has a stake in about 20.

All this goes to argue that while it's still too early to congratulate eBay for reaching its goals, investors should get ready to do so soon. Perhaps they've already been doing so, driving the stock higher.

Shares have climbed 82% in the three years since the 2005 goals were stated, and now eBay's stock is nearing all-time highs reached in early 2000. Recently at $60, it trades at 82 times this year's earnings-per-share estimate and 59 times the 2004 estimate. The company's third-quarter results, due Thursday, call for $0.18 in earnings per share, up 63%.

Jeff Fischerowns shares of eBay.


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