The consumer spending slowdown that first hit EBay Inc. in mid-August could ruin its Christmas sales and drag on into 2009, the online auctioneer’s executives said Wednesday, sending its shares down 3.5% in after-hours trading.
The tumble followed a drop of $2.41, or 13.6%, in the regular session to $15.33 as investors remained skeptical about EBay’s efforts to counter stalled growth in its online auctions business and rising competition in the midst of a global economic slowdown.
The San Jose company reduced its 2008 revenue forecast and projected its first-ever quarterly sales decline to close the year.
“There is a high degree of economic uncertainty and turmoil in the financial markets,” Chief Executive John Donahoe told analysts. “This is impacting consumer spending and e-commerce growth rates, and we’re seeing an impact across all of our platforms.”
EBay posted net income of $492.2 million for the third quarter. That contrasts with a loss of $935.6 million in the same quarter last year caused by a write-down of its acquisition of the Internet calling service Skype. Revenue was $2.12 billion, a 12% increase from $1.89 billion last year.
But EBay cut its annual revenue forecast to a range of $8.53 billion to $8.68 billion, below its previous estimate of $8.8 billion to $9.05 billion. It expects to earn 39 cents to 41 cents a share before one-time items.
The fourth quarter, fueled by holiday sales, is usually the company’s strongest.
“It looks like EBay was hit by the economy far more than anyone has been expecting,” said Jeffrey Lindsay, an analyst with Sanford C. Bernstein.
Also surprising to analysts: EBay said the total value of goods sold on its site fell 1% from a year ago, the first decline in the company’s history.
“The weakness shows us that online commerce is not as immune to the weakening economy as we thought,” Jefferies & Co. analyst Youssef Squali said.
EBay Chief Financial Officer Bob Swan said he wished “there was a lot more clarity, at least in my crystal ball, on what is going to transpire over the critical holiday season for us. But honestly, there’s not.”
Canaccord Adams analyst Collin Gillis said to expect more Internet companies to issue wide ranges in guidance and gloomy outlooks. “There is no visibility on consumer spending,” he said.
EBay is undergoing a turnaround effort led by Donahoe, who took the reins from Meg Whitman in March. Shares of EBay have lost nearly half their value in the last six months.
Last week, EBay said it would lay off 10% of its workforce of 16,000, including 1,000 permanent employees, and pay a total of $1.35 billion to buy online payment firm Bill Me Later and two Danish classified advertising companies. The layoffs were concentrated in the online auction business, which generates about two-thirds of EBay’s revenue but is suffering from slowing growth.
“These are turbulent times for which no one has the perfect playbook,” Donahoe said.
As part of the overhaul, Donahoe has focused on making EBay easier to use and safer as well as on increasing fixed-price versus auction sales. He noted that the number of sellers with high ratings had grown by 20% over the last six months. Fixed-price sales were up 11%, representing 46% of sales volume, he said.
One analyst expressed doubt about a quick turnaround at EBay. “There is plenty of stuff listed, [but] people aren’t buying it,” said Lindsay of Sanford C. Bernstein. “What that tells us is that it’s going to be a lot harder and slower for them to turn this business around.”