(Adds executive comment, details on tax charge)
By Deepa Seetharaman
SAN FRANCISCO, April 29 EBay Inc is
preparing to bring a major portion of its foreign earnings back
into the United States, hoping to bankroll acquisitions and
drive an expansion into mobile payments and other high-growth
areas as its core business matures.
Ebay, which on Tuesday forecast lower-than-expected earnings
this quarter, also plans to ramp up its marketing spending on
PayPal, which is an Internet leader but faces stiff competition
in the fledgling smartphone payments market.
The company took a $3 billion non-cash tax charge in the
first quarter. The move will allow eBay to boost its available
U.S. cash by about $6 billion, when needed.
It ended the first quarter with cash, cash equivalents and
nonequity investments of $11.9 billion, though just $2.2 billion
of that is in the United States.
"If you look at our last 15 acquisitions, my guess is 10
have been inside the U.S., maybe 11," Chief Executive John
Donahoe said in an interview. "Just looking at that versus where
our cash is located, you just say, alright it would make more
sense to have more cash in the U.S. for M&A."
Shares of eBay fell about 4 percent to about $52.25 in
after-hours trading despite posting a higher-than-expected
first-quarter profit. Ebay's second-quarter profit outlook fell
short of analyst estimates.
During the first quarter, eBay repurchased 33.1 million
common shares for about $1.8 billion as part of its previously
announced $5 billion share buyback program.
The quarterly scorecard came a few weeks after activist
investor Carl Icahn dropped his campaign to force eBay to spin
out its most attractive division, PayPal.
Icahn's push to carve off PayPal emerged in January, but he
backed down after his efforts failed to gain the support of eBay
investors. Donahoe said Icahn's campaign did not shape eBay's
decision to repatriate foreign earnings to fund U.S. growth.
The reality is we're seeing growing opportunities in the
U.S.," Chief Financial Officer Bob Swan said during a call with
analysts. "Additionally, we are an acquisitive company and we
need to ensure we have the resources available to capitalize on
targets that become available both domestically and abroad."
'ACTION AND ACTIVITY'
EBay declined to say how it would use the extra cash in the
United States, but Donahoe said eBay's approach to acquisitions
would be consistent with years past. He pointed to last year's
acquisition of payment gateway Braintree as an example of how
eBay would build on its businesses such as PayPal.
PayPal has been a key driver of eBay's share value, as the
company vies with larger rival Amazon.com Inc, and
analysts expect the unit to remain a fast-growing business as it
expands into offline payments.
"If you look at what is happening in the world of commerce
and payments, there is a lot of action and a lot of activity,"
Donahoe said during a conference call. "And so we continuously
assess opportunities to where we think it will be strategically
and financially valuable to extend our platforms."
The company earned 70 cents per share during the quarter,
better than the average analyst estimate of 67 cents per share,
according to Thomson Reuters I/B/E/S. But eBay forecast a
second-quarter profit between 67 cents and 69 cents, less than
the 70 cents per share expected by Wall Street.
Some investors were expecting an even larger first-quarter
beat after Carl Icahn ended his campaign to force eBay to spin
out PayPal earlier this month, Wedbush Securities analyst Gil
EBay's revenue rose a slightly better-than-expected 14
percent to $4.26 billion. PayPal, eBay's fastest-growing
division, posted a nearly one-fifth increase in revenue.
"Investors assumed that's because the results were very good
and Mr. Icahn was content with what he was seeing," Luria said.
"Expectations were very high going into the quarter," he
said. "The results were good, but not as good as some expected."
(Reporting by Deepa Seetharaman; Editing by Bernard Orr)