EBay Profit Soars 76% as Sales Slowdown Doesn’t Materialize

Times Staff Writer

EBay Inc. on Wednesday reported sharply higher third-quarter profit and raised its full-year sales projections but stoked investor concerns that its torrid growth rate was slipping.

The world’s largest online auction house said the revenue slowdown it had feared heading into the summer had not materialized, thanks largely to a steady increase in new users, booming international sales and a weak dollar. It raised its forecasts for sales and profit for the year and issued 2005 guidance for the first time, but the new projections only matched or fell short of Wall Street expectations.

San Jose-based EBay reported a 76% increase in net income to $182.3 million, or 27 cents a share, compared with $103.3 million, or 16 cents, during the same period last year.

EBay executives spooked some investors in July when they warned that the Internet auction market was becoming more “mainstream” and therefore more susceptible to the seasonal ups and downs of the offline retail world. They warned that a sharper-than-expected seasonal drop-off would cause sales to dip slightly from the second quarter to the third.


That didn’t happen. Sales were $806 million, up 52% from $531 million a year earlier and up 4.3% from $773 million in the second quarter.

“We have excellent momentum going into EBay’s typically strongest quarters,” Chief Executive Meg Whitman said.

As the pioneer and dominant player in Internet auctions, EBay doesn’t have to worry much about competitors. Instead, its executives have to cope with investors’ lofty expectations and their concerns about signs that EBay is slowing down after a decade of steep gains.

Revenue grew 29% in its core U.S. transactions business, and sales were up 56% for its PayPal online payment service. But those growth rates were the smallest in more than a year.


“It’s not that there’s a fundamental problem with the business; it’s just that you’re getting to the law of large numbers,” said Martin Pyykkonen, an analyst with Janco Partners who this week downgraded EBay stock to “market perform” from “accumulate.”

EBay raised its 2004 sales forecast by $65 million, to $3.25 billion, slightly more than analysts’ consensus of $3.22 billion. It raised its forecast for earnings excluding one-time charges by 3 cents to as much as $1.20 a share, matching the consensus estimate of analysts.

For 2005, executives said they expected revenue of as much as $4.2 billion, net income of $1.42 a share and earnings excluding charges of $1.50 a share. That fell $100 million short of analysts’ expectations in sales and 11 cents short in earnings.

EBay shares, which fell $1.09 to $91.36 in regular Nasdaq trading, rose to $94.35 in extended trading after the earnings report.

EBay’s third-quarter results were buoyed by expansion overseas and a weak dollar, which boosted revenue by $22.3 million compared with the same period last year. International sales grew 82% to $282.3 million, compared with U.S. growth of 29% to $330.6 million.

But PayPal’s revenue this quarter may be hurt by outages that plagued the service for nearly a week this month. During a conference call with analysts, Whitman attributed the service disruptions to a troublesome software upgrade and apologized to users. But she did not say how the outage would affect the PayPal business.