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September 24, 1998

eBAY REIGNITES IPO MARKET WITH 197% SURGE AT OPENING

By CBR Staff Writer

eBay Inc got its initial public offering away successfully yesterday – contrary to fears barely a week ago that it would flop – at the high-end of a target price rage that was raised at the last minute by the lead underwriter, Goldman Sachs & Co Inc. eBay, the San Jose-based online person-to-person auctioneer has raised $62.8m, before expenses. The 3.5 million shares were sold at $18, Goldman Sachs having raised the target range to $16 to $18, from $14 to $16 earlier this week. On the first day of trading, eBay shares opened at $53.50, that’s a staggering 197% premium on their offer price. They slipped throughout the day, which is to be expected, closing at $47.375, a $29.375, or 163.2% premium above the offer price. At its lowest it hit $44.25, before investors began buying again, pushing it up at the finish. A lot more was riding on this IPO than the personal fortunes of the directors and the company’s balance sheet, however, as Wall Street is hoping that this, the first IPO for a month, will give the market the shot in the arm it needs to encourage other companies worried by the economic climate to take the plunge and launch other offerings. It has been the longest period without an IPO since 1970, the last one being BankFirst Corp on August 27. However, it did not prevent internet retailer Value America from withdrawing its IPO on Wednesday, saying it wanted to delay it due to current market conditions. But eBay is not like most internet IPOs, as it has been profitable almost from the start. Last year it recorded net income of $874,000 on revenues of $5.7m and had $10.7m in cash and equivalents as of June 30 this year. The IPO, in which 9% of the company was sold, gives the company a market capitalization of $715.3m. The first hurdle the company is likely to face, however, is not an economic , but a legal one. eBay mentioned in its S1 filing that it was aware of the dangers of fraud in its business, and that it had received a letter from an unnamed state attorney general informing the company that it was under investigation over whether or not its legal disclaimers – informing users that it will not get involved in the transactions in the form of offering a guarantee – are adequate. eBay’s business relies on the word of the buyer to pay up and the seller to supply the goods. If that trust is broken, so will its business model. The company has been in its quiet period, so presumably we will soon be able to find out if eBay will begin offering some sort of guarantee against fraud, like its rival, Auction Universe (09/16/98), which would put minds at ease of consumers of the eBay service, as well as investors.

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