EBay profit meets Street; shares dip on cautious view

SAN FRANCISCO Thu Oct 20, 2011 1:58pm EDT

Visitors pass the Ebay logo at the CeBIT computer fair in Hanover March 2, 2011.   REUTERS/Tobias Schwarz

Visitors pass the Ebay logo at the CeBIT computer fair in Hanover March 2, 2011.

Credit: Reuters/Tobias Schwarz

SAN FRANCISCO (Reuters) - EBay Inc reported profit that matched Wall Street estimates and gave a restrained outlook for the rest of the year because of economic uncertainty, sending its shares lower.

"Not a spectacular quarter," said R J Hottovy, an equity analyst at Morningstar. "It was essentially in line, which may have disappointed the market."

The operator of the largest online marketplace reported third-quarter net income of $490.5 million, or 37 cents a share, compared with $432 million, or 33 cents a share, a year earlier.

Excluding stock-based compensation expenses and other items, profit was $628.2 million, or 48 cents a share, in the latest period, the company said. Revenue rose 32 percent to $2.97 billion.

Analysts, on average, had expected EBay to earn 48 cents a share on revenue of $2.91 billion, according to Thomson Reuters I/B/E/S.

EBay is riding a strong e-commerce growth wave as shoppers buy more online and through smartphones and tablet computers.

The company benefits from this trend because its Internet marketplaces make money by charging fees on transactions and other activity. The company's PayPal unit also wins as it takes a small cut of a rising volume of electronic payments processed on its network.

However, the debt crisis in Europe and global economic slowdown has the potential to restrain all types of consumption during the crucial holiday season, even online.

"We read the same newspaper headlines and we don't have a crystal ball on the economy," eBay Chief Executive John Donahoe said in an interview with Reuters. "I don't think it will be a great holiday, but we are putting our stake in the sand and saying we think it will be solid."

EBay Chief Financial Officer Bob Swan said the company saw a "modest deceleration" in its German and U.S. businesses as the third quarter ended.

EBay forecast fourth-quarter profit of 55 cents to 58 cents a year. Analysts, on average, were expecting 58 cents a share, according to Thomson Reuters I/B/E/S.

EBay forecast full-year revenue of $11.5 billion to $11.6 billion and full-year profit of $1.98 to $2.01 a share.

When eBay reported second-quarter results in July, the company forecast full-year revenue of $11.3 billion to $11.6 billion and full-year profit of $1.97 to $2.00 a share.

"Investors were assuming there would be upside surprise in earnings or the guidance," said Fred Moran, an analyst at The Benchmark Company.

"They maintained their full-year forecast essentially, which reflects a little caution around the global economy," Moran added. "Management could increase forecasts later in the year, but things are too volatile right now to stick one's neck out."

EBay shares fell 4.1 percent to $31.82 in after-hours trading.

PAYPAL LOSSES

PayPal's loss rate -- which measures how much the unit loses to payment fraud -- climbed to 0.31 percent in the third quarter, versus 0.25 percent in the previous quarter.

EBay's Donahoe said the increase was partly due to a jump in the volume of transactions processed by PayPal over mobile devices.

PayPal expects to process $3.5 billion worth of mobile payments this year, up from $750 million in 2010.

PayPal's fraud-monitoring computer models need time to adjust to this new source of transactions, CFO Swan told analysts during a conference call on Wednesday.

Once the models have adjusted, PayPal's loss rate should decline, the CFO added.

Donahoe said the adjustment will make PayPal more competitive in the long-term.

"Paypal's business model is even more powerful on a mobile device than on a computer," Donahoe said. "You can lose your phone but not your money with PayPal."

(Reporting by Alistair Barr; editing by Bernard Orr)

(Corrects paragraph 14 to the Benchmark Company instead of Benchmark Capital)

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