EBay Shrs Slide After 3Q Profit Drop, 4Q Outlook Disappoints

[joeblow]

EBay Shrs Slide After 3Q Profit Drop, 4Q Outlook Disappoints

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 EBay Inc. (EBAY) reported a drop in third-quarter earnings, though revenue for the quarter came in notably higher than Wall Street's estimates as the company's core online auction business continued to show signs of improvement.

 

Nevertheless, eBay slid 2.9% shortly after the market opened Thursday, to $24.30, as the company's fourth-quarter forecast failed to meet the hopes of investors who have pumped the shares up nearly 80% this year.

 

"The fundamentals look pretty good on the quarter; it's the [fourth-quarter] guidance that looks a little light," said Aaron Kessler of Kaufman Bros. after results were released late Wednesday.

 

Noting the recent run-up on the stock, Kessler said "expectations clearly got ahead of the numbers here."

 

For the third quarter, eBay reported earnings of $349.7 million, or 27 cents a share, down from $492.2 million, or 38 cents a share, for the same period last year. Excluding charges related to stock-options and other items, the company said it would have earned $502 million, or 38 cents a share, in the recent period.

 

Revenue rose more than 5% to $2.24 billion. It was the company's first year-over-year revenue gain in 12 months.

 

Analysts were expecting eBay to report earnings of 37 cents a share on revenue of $2.14 billion for the third quarter, according to consensus forecasts from Thomson Reuters.

 

"We're strong company, getting stronger," CEO John Donahoe said on a conference call. "We're doing what we said we would do, and we're managing with focus, discipline and accountability."

 

Gross merchandise volume--the value of all merchandise sold over eBay--rose 7% from the same period last year. Analysts were expecting a drop of 5% to 10%.

   Guidance Conservative
 

For the fourth quarter, eBay said it expects earnings of 38 to 40 cents a share on a non-GAAP basis; analysts were expecting 40 cents a share. Revenue is expected to come in between $2.2 billion and $2.3 billion; analysts had been looking for revenue of $2.26 billion.

 

There was initially some confusion about how the pending sale of Internet telephony unit Skype was affecting the forecast. EBay said it intends to close the sale of Skype to a group of private equity investors by mid-quarter, leaving some question about how much of Skype's results were baked into the forecast.

 

On the call, eBay said the forecast assumes a mid-quarter closing date for the sale of Skype.

 

In an interview with The Wall Street Journal, Donahoe also said the $2 billion sale of Skype is on track to close under the same terms the company announced in September. EBay and the buyers have both been sued by Skype's co-founders, who accuse the company of copyright theft and are seeking an injunction against the sale.

 

Speaking generally of the fourth quarter, Donahoe said on the call that he sees the economy as stable, "and we're cautiously optimistic about consumer spending going into the holiday."

   PayPal Strong
 

For the third quarter, eBay's PayPal business once again served as a growth engine.

 

Revenue for the unit was up 15% to $688.1 million, making up a little more than 30% of total revenue for the quarter. Active registered accounts grew 19% to 78 million, the company said.

 

EBay is folding in its recently acquired Bill Me Later business into its PayPal offering. Donahoe said Bill Me Later will be available to all who have qualifying credit scores.

 

EBay's marketplace business still accounted for the majority of revenue, with $1.4 billion for the quarter, down 1% from the same period last year. The company cited "strong growth" in its fixed-price format, with sales in this category accounting for 56% of total GMV for the period.

 

Fixed-price sales may help eBay better compete against Amazon.com Inc. (AMZN). The online retail giant has taken some market share away from eBay in recent years with the addition of used items for sale next to new items on its site. Donahoe said media products like books, music and videos are especially popular for fixed-price sales, and these are also Amazon's most popular product lines.

 

Skype revenue rose 29% to $185.2 million for the quarter.

-Dan Gallagher; 415-439-6400; mailto:AskNewswires@dowjones.com">AskNewswires@dowjones.com