EBay Profit, Sales Soar but Shares Dive
EBay Inc., which for years could do no wrong, on Wednesday could do no right.
The online auctioneer said fourth-quarter profit and revenue jumped 44%, causing merchandise sellers rankled by a recent hike in listings fees to claim EBay was growing at their expense.
But not fast enough for Wall Street, apparently. EBay shares plunged nearly 12% after the company’s sales forecast and earnings fell short of analysts’ expectations. The shares fell 3% to $103.05 in Nasdaq trading before the earnings release, then tumbled to $91 after hours.
“They had phenomenal years in 2002, 2003 and 2004, but 2005 is probably not going to be their year,” said David Garrity, an analyst with investment bank Caris & Co. “They’ve come out of the gate and fallen pretty badly on their face.”
San Jose-based EBay earned $205.4 million, or 30 cents a share, a sharp rise from a year-earlier profit of $142.5 million, or 21 cents. Excluding one-time items, earnings were 33 cents a share, a penny short of the consensus estimate of analysts polled by Thomson First Call.
Revenue rose to $935.8 million from $648.4 million, largely thanks to an increase in users overseas. EBay spent heavily last year to tackle new markets, including India, and said it would invest $100 million in China this year trying to gain a beachhead.
On Wednesday, the company announced a 2-for-1 stock split, payable Feb. 16, for shares owned as of Jan. 31, which Chief Executive Meg Whitman said would help individual investors afford the stock.
Recently, some individual business owners who make a living selling on EBay said they were considering abandoning the world’s biggest auction site because it was getting too expensive.
EBay last week tweaked the fees it charges merchants to list items, lowering some fees but raising others as much as fivefold. The average seller will have to pay 22% more to EBay, said Jonathan Garriss, executive director of the Professional EBay Sellers Alliance and chief executive of a New York-based online shoe store.
The fee increase prompted sellers to flood message boards with complaints that EBay was forgetting the community that built it.
Kelly Huston, 32, has sold jewelry from her home in Tacoma, Wash., since 1998. For her, the financial hit of higher fees was tougher to take when she saw EBay’s record earnings. She said the fees would drive her out of business.
“It’s an outrage,” she said. “EBay has become a worldwide monopoly on the Internet garage sale.”
Smaller rivals are trying to take advantage of the dissension. Overstock.com Inc., a small EBay rival in Salt Lake City, said the number of listings on its auction site jumped 50% in the five days after EBay announced the fee increases.
EBay Chief Financial Officer Rajiv Dutta said the pricing changes were designed to improve the quality of the items sold. He said he didn’t expect the new fees to cause many entrepreneurs to stop selling through EBay.
“We understand that the value of this market is making money for our sellers and providing a good experience for our buyers,” he said.
EBay is expanding internationally in search of new buyers and sellers. The site had 135.5 million users, up 43%, and 60% of its new users came from overseas. International revenue from auctions grew 64% to $344.3 million, almost surpassing U.S. revenue from auctions, which grew 24% to $362.7 million.
The company said it would invest $100 million, roughly 2% of its expected sales this year, in China, which Whitman called “the biggest e-commerce opportunity anywhere.”
But the investment in China and other countries, where there’s more competition, will cut into profitability.
So EBay raised its 2005 revenue forecast to as much as $4.35 billion, from as much as $4.2 billion, but lowered its guidance for earnings per share to between $1.37 and $1.41, from an earlier forecast of $1.42.
Caris & Co.’s Garrity said the short-term China hit might not be worth the long-term bet.
“China is a good place to lose a lot of money,” he said. “EBay has become a wait-and-see story.”
