EBay to cut 10% of workforce, buy 3 firms
Online retailer EBay Inc., which is trying to reverse years of slowing growth in its auction business amid rising competition and a spreading financial crisis, said Monday that it would cut 10% of its global workforce even as it spends $1.3 billion to buy three Web businesses.
Even after announcing the largest reduction in its 13-year history, which EBay said would save $150 million in annual operating costs, the San Jose company saw its shares tumble by as much as 12% to their lowest level in more than five years. They recovered to close at $17.89, down 5.5%.
Investors are concerned that EBay’s bread and butter, online auctions, is showing increasing vulnerability to slowing consumer spending, the slumping U.S. housing market and high fuel prices.
EBay’s latest slide was part of a broad sell-off of technology stocks. Analysts say the high-tech industry is firmly in the grip of the economic turmoil it had hoped to sidestep. Companies such as Microsoft Corp., Google Inc. and Yahoo Inc. are reevaluating their staffing, and giants such as Hewlett-Packard Co. have already cut jobs.
Although EBay said the layoffs were not a result of the economic downturn, Chief Executive John Donahoe acknowledged that the weakening economy and the strengthening dollar were affecting sales. Donahoe, who took the reins from Meg Whitman in March, has been trying to lead a corporate overhaul.
Said Standard & Poor’s analyst Scott Kessler, “People are still looking for that turnaround and for growth in the core operations.”
Part of EBay’s turnaround strategy is to jump-start growth by investing in its Web payments and classified advertising businesses. It agreed to pay $945 million in cash and stock for Bill Me Later, which extends online credit to consumers, and $390 million for two Danish classifieds websites, DBA.dk and BilBasen.
But EBay also plans to lay off about 1,000 full-time employees and as many as 600 temporary workers, and to take a restructuring charge of as much as $80 million in the fourth quarter. EBay will also eliminate open positions.
This is the company’s second round of cuts this year. EBay said in March that it would cut 125 positions in Europe and North America, including 70 jobs in its San Jose headquarters.
Sanford C. Bernstein & Co. analyst Jeffrey Lindsay called the cuts “long overdue” but said they might not be enough as EBay struggles to compete against Amazon.com Inc. and other online rivals.
Donahoe has made strides toward his goal of creating a safer, more predictable shopping experience and enticing more buyers with a greater selection of goods, Lindsay said. The CEO has encouraged more fixed-price selling and changed the way auctions are listed to favor larger sellers with better ratings, lower shipping fees and lower prices.
But the changes have angered mom-and-pop merchants who make a living from the site. Some have staged online protests or set up shop elsewhere on the Web.
Donahoe said Monday that he was trying to drive “long-term growth for our company.” And a down economy should help by driving more bargain hunters to EBay, analysts say. But his efforts to reverse EBay’s market-share loss have yet to bear fruit.
A sign that EBay is still struggling: It said Monday that third-quarter revenue would hit the low end of its predicted range, although its profit is expected to surpass expectations.
Scot Wingo, CEO of ChannelAdvisor Corp., which helps merchants sell on EBay and other sites, said the first signs of increased competition emerged four years ago.
“In this world, you can’t wait four years to jump on something,” he said.
EBay expects Bill Me Later, which would be combined with its PayPal business, to generate an additional $150 million in revenue in 2009.
Morningstar analyst Larry Witt said the acquisition would give PayPal relationships with large merchants. “They are doubling down on what we think is their best growth opportunity,” he said.
Although some investors fear the acquisitions of Bill Me Later and the Danish websites will eat into EBay’s earnings, analysts say they play to the company’s strengths -- unlike the $3.1-billion purchase of Internet communications company Skype, which has failed to generate the revenue or synergies EBay expected.
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