SAN FRANCISCO – Shares of eBay Inc. (EBAY) posted their biggest one-day drop since November 2000 Thursday after its quarterly profit missed Wall Street expectations and raised "red flags" about growth prospects at the online marketplace.
Compounding the blow was eBay's 2005 forecasts, which lowered expectations rather than bumping them up as usual.
The company's stock fell $19.72, or 19.1 percent, to $83.33 on Nasdaq after hitting a session low of $81.40.
Even with the decline, which shaved well over $10 billion from eBay's market valuation, investors who bought into eBay's September 1998 initial public offering still have seen the value of each share jump by about 5500 percent.
"We believe this is the first time eBay has ever missed the Street's (earnings per share estimate)," American Technology Research analyst Mark Mahaney said in a client note on Thursday in which he cut his eBay price target to $100 from $107.
"There are too many red flags," Mahaney said.
Janco Partners analyst Martin Pyykkonen said in a note that eBay was "losing some near term mojo."
While performance was generally solid for the quarter, "U.S. and German markets were weaker than seasonally expected — which in our opinion suggests at least some degree of saturation in eBay's most established and traditional markets," said Pyykkonen, who has a $90 price target on the shares.
"It's not like it's hitting a wall. It's more like a deceleration," Pyykkonen said in an interview with Reuters. He added it appeared that eBay felt like it had to spend more money in core markets to get its next buyer or seller.
"There is no historical precedent for a business like this," he said.
In a flurry of notes, analysts cited a swath of deteriorating fundamentals, including slower overall user growth despite strong international pickup, higher-than-usual marketing costs, weaker-than-expected profits and soft international results.
They also lowered profit and revenue forecasts to reflect eBay's new guidance.
Some called eBay's $100 million investment in China, which is not a profitable business, defensive while others said it was right to invest in that market and its PayPal business to boost future growth.
Nevertheless, several analysts said eBay remains a strong company and adopted a wait-and-see stance.
"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," Piper Jaffray Internet analyst Safa Rashtchy said in his note.
If eBay stumbles and there is serious resistance to coming price increases that will largely hit basic eBay Store users, Pyykkonen said sellers could begin to leave eBay, which now has a virtual lock the U.S. market.
Discount Web retailer Overstock.com (search) has stepped up efforts to draw users to its new, and significantly smaller auction service and Web search advertising providers Google Inc. (GOOG) and Yahoo Inc. (YHOO) also could gain increased popularity with sellers.
Mark Herskovitz, portfolio manager for the $2.2 billion Dreyfus Premier Technology Growth fund, said: "I don't think the stock falling has anything to do with their business."
Herskovitz, whose fund owns both eBay and Yahoo shares, said eBay's sky-high valuation has been propped up by an unblemished record of exceeding expectations.
"It is bad news from a stock point of view, not a business one," he said.