WASHINGTON, Jan. 21 (UPI) -- Up until a few weeks ago, it seemed that eBay could do no wrong.
But while the company continues to reap in profits, the slowdown in growth has left many investors to dump their interest in the online auction house as they sought out the next new thing. In short, the company has fallen victim to its own roaring success over the past few years, as slow and steady growth is seemingly not good enough for a notoriously impatient and fickle financial market.
So while other dot-com startups collapsed with the burst of the Internet buying frenzy in 2001, the fact that the San Jose-based company kept going from strength to strength also allowed those Internet investors' hopes for a never-ending succession of higher earnings alive. The company met or exceeded Wall Street's expectations every quarter with one exception since the year the year of the dot-com bust. Meanwhile its president, Meg Whitman, was awarded a slew of accolades as a sharp and no-nonsense businesswoman, and she came to personify the dot-com industry of Silicon Valley that could actually make profits and challenge traditional businesses in how they generate money.
But that winning streak seemingly ended this week with the company's announcement that it expects sales in 2005 to reach between $4.25 billion and $4.35 billion, compared to the $4.37 billion to $4.52 billion anticipated by Wall Street analysts.
Of course for most companies, the difference between the corporate projection and what investors were hoping for would have been marginal and may not even have affected share prices at all. But because this is eBay and investors expected the company to keep exceeding projections, disappointment about the company becoming more like a normal enterprise led to a massive sell-off in eBay's shares, which plunged nearly 20 percent after the earnings projection announcement.
Granted, it's not only investors seeking never-ending rapid gains that have begun to turn their backs against eBay. Many analysts have also been concerned about the company's aggressive expansion into China.
EBay said this week that it would invest $100 million in China in 2005 alone to take advantage of the country's growing e-commerce market, which some investors believe could allow eBay to continue make money at the same pace it had in the U.S. markets over the past three years, but some industry analysts argue that China is unlikely to become a mainstream e-commerce market for years, and that eBay's foray into the Chinese market was premature.
Yet the company remains fundamentally solid, with 135 million registered users, and more than 1.4 billion items were listed on its site last year alone. That, however, isn't good enough for many investors wanting ever-bigger profits indefinitely.
To be sure, eBay is far from alone in losing its earlier attractiveness as a company that could keep giving investors more, and turning from the darling of the stock market to an unwanted partner. In fact, compared to doughnut makers Krispy Kreme of Winston-Salem, eBay still has it easy.
When Krispy Kreme decided to make its hot glazed doughnuts available nationwide by going public in 2000, the company's share price more than doubled two years later as investors banked that the country's appetite for the sweet treats would no know bounds. Since then, however, the company has been plagued by a number of major problems, including an ongoing investigation by the Securities and Exchange Commission and a number of late company filings to the authorities. Krispy Kreme posted its first quarterly loss in May, and has found it difficult since to improve its earnings as well as its share price.
In fact, having peaked to nearly $50 per share in 2003, Krispy Kreme stocks hit an all-time low of $8.72 last week. And while the company's decision earlier this week to bring in a new chief executive Stephen Cooper to replace Scott Livengood, who had been there for the past seven years, boosted share prices for the day, speculation is abound that Krispy Kreme could be facing greater difficulties going forward.
For while Cooper is a veteran of corporate restructuring, as he continues to advise Enron and has previously acted as management consultant to other companies including Boston Chicken, the financial difficulties facing the doughnut maker loom large. Already, the company has warned that sales in the fourth quarter ended Jan. 30 could mark its third quarterly loss, while it also reported that average weekly sales per factory had fallen 18 percent in December from a year ago. Furthermore, the company has repeatedly stated that the low-carbohydrate diet craze led to a sharp fall in sales, even though the popularity of the Atkins diet is rapidly declining.
Granted, it's probably far too early to judge whether Krispy Kreme is doomed to fail, as some industry analysts are already wont to do. Yet it's clear that while the doughnut maker is a household name and die-hard fans of its products remain fiercely loyal, Krispy Kreme investors' hopes for a nationwide craze may have been far-fetched.
But try telling a gung-ho stock investor that his expectations can't continue to be met forever, especially when there are so many other alternatives.