EBay fee increase helps lift profit 24%

Times Staff Writer

EBay Inc. found an easy way to bump fourth-quarter profit: It charged some sellers more to hawk their holiday products.

The San Jose-based Internet giant said Wednesday that net income jumped 24% as it started to benefit from its July decision to jack up some listing fees. It also saw strong demand for gift items and its PayPal payment service.

Citing heavy use of its auctions overseas, the e-commerce company trounced analysts’ earnings predictions, issued a rosy revenue forecast for 2007 and said it might repurchase as much as $2 billion worth of its stock over the next two years.

EBay shares rose $1.38, or 5%, to $30 in regular trading, then surged nearly 13% to $33.75 in after-hours trading after the earnings release.


The results suggested that EBay had regained some momentum after a rough patch, which included executive defections, struggles to break into the China market and its first decline in earnings.

Still, as growth in its main business -- auctions -- keeps slowing, EBay is counting on acquisitions to tackle new markets and maintain the feverish growth pace the company set during its first 10 years.

“When you get to EBay’s size, it becomes very hard to accelerate growth,” said Youssef H. Squali, an analyst at Jefferies & Co.

EBay earned $346.5 million, or 25 cents a share in the quarter, compared with $279.2 million, or 20 cents, a year earlier. Revenue climbed 29% to $1.7 billion.


Excluding stock option expenses and other one-time items, net income jumped 27% to $431 million, or 31 cents a share. Analysts polled by Thomson Financial had expected 28 cents on that basis.

For all of 2006, EBay posted revenue of $6 billion, up 31% from 2005. Net income grew 4% to $1.1 billion, or 79 cents a share.

Much of the growth came from auction listings, which made up more than 70% of overall revenue. EBay presided over $14.4 billion in transactions in the fourth quarter, up 20% from a year ago. Hot items included new video game consoles from Sony Corp. and Nintendo Co.

The company said its decision last summer to hike fees, which had been protested by some sellers, had started to pay off. In July it began charging more for items posted on its so-called storefront, where merchants sell items for fixed prices rather than auction them to the highest bidder.


EBay Chief Executive Meg Whitman said as much as 87% of EBay’s listings had been on the storefront. Because fees were so low, sellers flooded it with little-wanted items.

The fee increase encouraged sellers to remove some low-ticket items and better promote the remaining ones, or to move them to the auctions section, which is more profitable for EBay. After raising fees, Whitman said, the percentage of listings on the storefront dropped to 70%.

Analysts said EBay’s financial picture would continue to brighten throughout the year as the ratio improves.

“What they showed this quarter was the pricing changes have actually had a positive effect,” Squali said. “That’s why you see reacceleration in the core business. And the effect of that re-pricing hasn’t been fully felt yet.”


EBay’s online payments business, PayPal, also saw more action, both on EBay and on other merchants’ sites. Revenue at PayPal grew 37% to $417 million in the quarter.

Analysts were less enthusiastic about the direction of Skype, which enables users to make phone calls over the Internet. EBay bought Skype in 2005 for $2.5 billion in cash and as much as $1.4 billion in future payments, if certain performance-based goals are met. Skype pulled in $66 million in revenue in the fourth quarter, up from $25 million a year earlier.

Whitman said Skype’s registered users rose 179% to 171 million, but she acknowledged that EBay “did not monetize Skype as aggressively as we had anticipated.”