EBay posts 52% jump in earnings
EBay Inc.’s profit and sales surged in the first quarter, tempering concerns that the online auction giant was losing momentum.
Strength in EBay’s PayPal online payment business, success in controlling costs, a weak U.S. dollar and a lower tax rate helped push earnings up 52% from a year earlier to $377.2 million, or 27 cents a share. Revenue climbed 27% to $1.77 billion.
Analysts had expected revenue of $1.72 billion. The company also said its Skype Internet telephone business recorded its first quarterly profit.
EBay also raised its forecast for 2007 revenue to between $7 billion and $7.3 billion, or about $150 million higher than the previous projection. The San Jose-based firm also lifted its per-share earnings projections for the year by a nickel, to between $1.30 and $1.34.
Slower growth in EBay’s auction business in the U.S. and Germany, two of its largest markets, has led some analysts to question its long-term prospects.
“Their noncore businesses, things like advertising and Skype, really drove the business in the quarter,” said Derek Brown, an analyst with Cantor Fitzgerald. “But the fundamental buying of goods on the EBay site continues to face pressure. Buyers and sellers are clearly using alternative sites.”
EBay’s growth has lagged that of the online shopping industry for the last two years as it has struggled with competition from Amazon, Craigslist, Google, Wal-Mart and a host of merchants with their own online stores.
EBay has responded by making crucial fixes to its auction system. It raised fees for items listed on its so-called storefront, where sellers offer products at fixed prices rather than auction them to the highest bidder.
Because fees were so low, sellers had flooded the storefront with items of meager value. The increase encouraged sellers to remove some inexpensive items and better promote the remaining ones or move them to the auction section, which is more profitable for EBay.
The move, some analysts said, has helped put EBay back on track.
“They’re now growing in areas where they can make more money,” said Tim Boyd, an analyst with American Technology Research. Boyd expects EBay’s revenue to at least keep pace with that of online shopping overall.
“They’re now ahead of where they were when things started deteriorating for them in 2005, but their stock is half the price it was back then,” he said.
EBay shares, which lost 75 cents to $34.45, regained that ground and then some in after-hours trading, adding $1.23 to $35.68.
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