EBay beats Street view, shares rise

SAN FRANCISCO Wed Apr 22, 2009 7:40pm EDT

A photograph of a computer screen showing the website eBay is shown here in Encinitas, California April 22, 2009. REUTERS/Mike Blake

A photograph of a computer screen showing the website eBay is shown here in Encinitas, California April 22, 2009.

Credit: Reuters/Mike Blake

SAN FRANCISCO (Reuters) - EBay Inc beat Wall Street expectations on earnings and revenue on Wednesday thanks to cost cuts and solid growth at its Skype telephone and PayPal payments divisions, sending its stock higher.

But the e-Commerce giant that helped pioneer the Internet auction suffered a lower quarterly net profit, sales and margins because a stronger U.S. dollar hurt international sales and a waning global economy hit its core marketplaces arm.

Shares of the corporation, which is trying to spin off its Skype division to focus on its core e-commerce and payments businesses, leaped as much as 6 percent in extended trading.

EBay is trying to engineer a three-year turnaround, concentrating on galvanizing growth at its PayPal payments services and resuscitating a core marketplaces offering that has been hit hard by rivals such as Amazon.com Inc.

As part of that effort to refocus and streamline, the firm hopes to sell or spin off Skype, which some analysts say could fetch more than $2 billion.

Chief Executive John Donahoe told Reuters eBay could divest itself entirely of fast-growing Skype within two years.

"As I look forward, I think it will in the next 24 months benefit from being a stand-alone company," Donahoe said.

Sanford C. Bernstein analyst Jeffrey Lindsay said eBay is stabilizing its business, managing expectations with a cautious outlook because "They're not seeing any light at the end of the tunnel."

"The strategy for eBay and Yahoo yesterday is, 'We're just going to ride this out.'" he said. "Amazon might be a lot more exciting."

Yahoo Inc posted in-line results on Tuesday and online retailer Amazon posts quarterly results on Thursday.

"The positive news is we've been accustomed to being disappointed (by eBay)," said Ryan Jacob, portfolio manager at Jacob Internet Fund. "In this case, they did exceed the numbers a bit and the guidance was in line, so that alone is probably cause for some relief."

But he added: "The core problems are still there."

FLAILING MARKETPLACES

A stronger U.S. dollar hurt eBay's sales and profitability and eBay's marketplaces business, its largest unit that does auctions, fixed priced goods, classifieds and shopping sites, saw an 18 percent revenue decline in the first quarter.

On Wednesday, the company broadly matched expectations with its adjusted earnings outlook of 34 cents to 36 cents on revenue of $1.85 billion to $2.05 billion. Wall Street, on average, has been expecting earnings of 35 cents per share on revenue of $1.97 billion.

"Our guidance reflects weak consumer spending, tight cost controls and the negative impacts from foreign exchange," said Chief Financial Officer Bob Swan.

The company said first-quarter net profit was $357 million, or 28 cents per share, down from $460 million, or 34 cents per share, a year earlier.

Excluding one-time items, earnings per share were 39 cents, exceeding the 34 cents per share expected, on average, by analysts, according to Reuters Estimates.

Revenue slid 8 percent to $2.02 billion, the company said, still above the $1.95 billion expected, on average, by analysts. Some 54 percent of eBay's sales come from its international businesses.

At PayPal, the company's Web payment service, revenue rose 11 percent. They rose 21 percent at Skype.

But operating profit margins fell to 20.9 percent in the quarter from 25.2 percent a year ago, due to a stronger U.S. currency and a shift to lower-margin businesses, eBay said.

Gross merchandise volume excluding vehicle sales -- which measures the total value of goods sold on eBay -- fell 16 percent. GMV has suffered not only from stalled car sales, but from consumers turning to eBay for lower-cost, bargain items.

"If they could stop the GMV from declining in marketplaces, everyone would sigh a relief, but they cannot in this environment," Lindsay said.

Along with cost-cutting, eBay has tried to streamline selling on its site and improve security to capture more buyers and sellers. It says growth will come from selling liquidated, off-season goods in the so-called "secondary" market.

Last week, eBay offered to buy South Korean online retailer Gmarket Inc for up to $1.2 billion, a move that sets up the company for reinvigorated growth in Asia, Lindsay said.

EBay shares, which have gained 22 percent in the past month, rose 5.5 percent to $15.59 after closing on the Nasdaq at $14.78, up 3.43 percent.

(Reporting by Alexandria Sage; Editing by Edwin Chan, Phil Berlowitz and Andre Grenon)

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