EBay Falls Despite 40% Jump in Profit
Really, really good apparently isn’t good enough. Online auctioneer EBay Inc. on Wednesday posted a 40% jump in third-quarter profit on rapidly rising overseas sales, but shares nonetheless fell about 6%.
EBay met analysts’ profit expectations, but its forecast for 2006 was disappointing to investors demanding ever-higher growth rates. Last week, for instance, Apple Computer Inc. reported a quadrupling of quarterly profit, but promptly saw its shares sink about 10% on fears that demand for the wildly popular iPods might soften.
Net income for San Jose-based EBay reached $255 million, or 18 cents a share, up from $182.3 million, or 13 cents, in the same quarter last year. Revenue rose 37% to $1.11 billion, beating analysts’ expectations of $1.08 billion. Excluding one-time items, EBay earned 20 cents a share -- matching the average profit estimate of 25 analysts surveyed by Thomson Financial.
The company said it expected 2006 revenue of $5.7 billion to $5.9 billion, a growth rate of about 30% over 2005.
“There was a belief, including by myself, that there would be a little more upside in the quarter, but more importantly the guidance they put out” for 2006 was below what Wall Street had hoped for, said Scott Devitt, an analyst with Legg Mason. “I think they’re being conservative.”
EBay closed up $1.59 at $42.01 then slid to $39.60 in after-hours trading, after the earnings report. The company’s stock has fallen 28% this year.
To maintain its growth, EBay has expanded aggressively in new markets, but analyst David Edwards of American Technology Research said he was unsure whether the company could maintain the momentum.
“We don’t really know what the ceiling on the business is,” Edwards said. “This quarter they talked about strong growth in the U.S. and Germany and those were areas that were definitely struggling earlier this year.”
Sales in Europe and Asia rose 43% to $408.9 million during the third quarter, outpacing U.S. growth of 29% to $449.5 million. The number of PayPal accounts jumped 53% to 86.6 million.
“The penetration of e-commerce, the penetration of online payments, not to mention the very nascent stage of communications online, shows this is a very young business with a long way to go,” said Chief Financial Officer Rajiv Dutta.
Still, EBay shares stumbled this year after the company missed analysts’ projections in the fourth quarter of 2004 and cut its earnings forecast for 2005.
EBay issued an updated, full-year profit forecast Wednesday of as high as 83 cents a share for 2005, reflecting a penny per share profit reduction related to its $2.6-billion acquisition of Internet telephone service provider Skype Technologies Inc. The company forecast per-share profit of 21 cents in the fourth quarter -- a penny less than analysts expected.
EBay said it expected full-year revenue to be from $4.47 billion to $4.51 billion, compared with analysts’ forecasts of $4.43 billion.
“The business this quarter was extremely strong,” Dutta said. “We’ve signaled that our view going into the holiday season is very bullish.”
Also, EBay Chief Executive Meg Whitman announced that Dutta would become Skype’s president once his successor is named. Dutta will remain on the company’s executive management team. EBay’s purchase of Skype has come under scrutiny from some analysts who view the sale as a departure from the company’s core business.
But Whitman emphasized Skype’s compatibility with EBay’s existing properties, which include PayPal, Rent.com and Shopping.com. She noted that Skype uses the Internet to “deliver a powerful, new way for people to communicate online.... We see incredible potential for its use.”
