EBay Stock Drops on Forecast
Fearing a potential slowdown after years of torrid growth, investors on Thursday pushed down shares of EBay Inc. after the online auctioneer projected that next year’s profit would be lower than Wall Street expected.
EBay shares, which fell 10 cents to $57.50 on Nasdaq, dropped as low as $53.71 in after-hours trading after the San Jose-based company released its third-quarter earnings.
The auctioneer of items ranging from cow-shaped creamers to Florida condominiums posted net income of $103.3 million, or 16 cents a diluted share, on revenue of $530.9 million in the quarter ended Sept. 30. That’s up from net income of $61 million, or 11 cents a share, on sales of $288.8 million a year earlier.
“The Internet is increasingly the first place people go to shop,” said EBay Chief Executive Meg Whitman.
Investors, however, focused on EBay’s cautious 2004 outlook.
Executives forecast pro forma net income of 98 cents a share on revenue of $2.9 billion in 2004. Analysts polled by Thomson First Call had put 2004 pro forma earnings at $1.05 a share and revenue at $2.89 billion.
“They surprised the Street with their conservative guidance for 2004,” said Paul Keung, an analyst at CIBC in New York. Wall Street “had high expectations.”
Chief Financial Officer Rajiv Dutta acknowledged that EBay’s growth had slowed from its early triple-digit pace but noted that “the growth in EBay’s core business is very healthy.”
“It’s a smaller rate of growth, but it’s a very high rate of growth,” he said. “When we look at the opportunities ahead of us, our overall market opportunity is $1.8 trillion” in [gross merchandise sales]. Right now we are running at $23 billion in [gross merchandise sales] a year. That’s just a little over 1% of the potential market.”
EBay is expanding aggressively into foreign markets, including China, South Korea and Latin America.
EBay’s shares began sliding Monday after Lanny Baker, Citigroup Smith Barney’s Internet analyst, downgraded the company’s stock to “sell” from “hold,” citing concerns over its EBay Motors business, which accounts for nearly 30% of the company’s merchandise sales. Baker said car dealers who had stopped using EBay said the site was costly and complex to use.
Other analysts disagreed.
“I think the impact of EBay Motors has been blown out of proportion,” said Safa Rashtchy, senior analyst at U.S. Bancorp Piper Jaffray. “It’s not a reason to be concerned at this point. Even with the slower growth, EBay still has a ton ahead of it.”
