eBay, a perennial investor darling that defied the dot-com collapse, is warning Wall Street that its 2005 financial performance will fall...

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SAN JOSE, Calif. — eBay, a perennial investor darling that defied the dot-com collapse, is warning Wall Street that its 2005 financial performance will fall short of bullish expectations.

The company’s revised profit and revenue forecasts Wednesday provoked a swift market sell-off yesterday and unleashed a torrent of investor skepticism — ranging from the company’s China strategy to its skill at managing currency fluctuations.

eBay shares plunged $19.72, or more than 19 percent, to close at $83.33 yesterday, lopping more than $12.4 billion from the company’s market capitalization.

eBay shares are off more than 20 percent this month.

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Meg Whitman, eBay president and chief executive, said after earnings were reported late Wednesday the company expects to report 2005 sales between $4.25 billion and $4.35 billion, including $1.01 billion to $1.03 billion in the first quarter.

That’s below the lofty expectations of Wall Street, where a survey of 22 analysts by financial research firm Thomson First Call predicted eBay would report 2005 sales of roughly $4.37 billion, including $1.05 billion in the first quarter. The most optimistic analysts predicted 2005 revenue of $4.52 billion, including $1.07 billion in the first quarter.

“The bloom is off the eBay rose,” said David Garrity, a technology analyst for Caris. “You’re going to have the entire Street cutting numbers just to come in line with what the company published.”

eBay — considered one of the most financially conservative companies in Silicon Valley — has met or exceeded Wall Street expectations every quarter but one since 2001, when analysts began tracking the company’s performance.

Meg Whitman, eBay president and chief executive

Until now, eBay’s only disappointment was the second quarter of 2003, when it missed analysts’ prediction by 2 cents per share. But that episode didn’t significantly dent the stock price.

Based on its closing price Wednesday, eBay’s price-to-earnings ratio — a critical measure of Wall Street’s bullishness on a company, with a higher number indicating investors’ greater expectations of growth — was 98. By contrast, Microsoft’s ratio was 35. Wal-Mart, the world’s largest retailer, was 23.

Analysts sounded alerts on a variety of eBay data. Many questioned why the company would spend an estimated $100 million to develop its Chinese operations, though China isn’t likely to become a mainstream e-commerce market for years. Others worried about the rising amount of money eBay spends on litigation, administrative costs and other expenses.

In a research note, Derek Brown of Pacific Growth Equities warned that the company’s earnings may have been inflated by as much as $140 million in 2004 because of the weak U.S. dollar, which may not be sustainable in 2005 and beyond. He worried the company could miss more Wall Street expectations in 2005.

“We believe a more cautious approach to the stock is warranted at this time,” Brown wrote.

eBay had 135 million registered users in 2004 — enough to make it the world’s ninth-largest country, after Russia. More than 1.4 billion items were listed on the site last year — the equivalent of five items for every American.

eBay makes its money from fees it collects from sellers that use its auction and sales sites. Last year the value of merchandise sold through its online marketplaces totaled about $34.2 billion.

eBay announced last week it will increase fees Feb. 18, prompting some sellers to say they would try competing sites. Overstock.com said it had a 50 percent surge in auction listings in the five days following eBay’s announcement.

“I plan to sell off any excess inventory,” said Jason Dymond, 33, a Downingtown, Pa., software developer who sells vintage toys and antiques on the Internet. “My future with eBay will be buying up bargains and waiting for that one-of-a-kind find before deciding to list again.”

Dymond said the fee increase will likely result in fewer listings because it will cut into sellers’ profits.

“We believe eBay’s growth will continue to decelerate and the backlash from the fee increase leads us to believe that there is more risk in the business model than ever before,” wrote Legg Mason analyst Scott Devitt in a research note. He reiterated his “hold” rating on the shares.

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