updated 4/19/2006 7:11:03 PM ET 2006-04-19T23:11:03

Online auctioneer eBay Inc. on Wednesday hit analysts’ earnings target for the first quarter and reiterated its outlook for the remainder of the year, disappointing investors expecting bigger things from the e-commerce bellwether.

EBay shares fell nearly 5 percent on the news.

The San Jose, Calif.-based company said it earned $248.3 million, or 17 cents per share, during the three months ended in March. That represented a 3 percent decrease from net income of $256.3 million, or 19 cents per share, at the same time last year.

EBay accounted for the two quarters much differently because of new rules requiring publicly held companies to deduct the costs of their employee stock options from their profits.

If not for the option expenses and a smattering of other items, eBay said it would have earned 24 cents per share in its most recent quarter. That matched the average estimate among analysts polled by Thomson Financial.

Revenue for the first quarter totaled $1.39 billion, also meeting analyst expectations, according to Thomson Financial. The revenue increased 35 percent from last year’s $1.03 billion.

EBay released the results after the stock market closed. The company’s shares gained $1.47 to close at $40.35 on the Nasdaq Stock Market, then retreated by $1.95, or 4.8 percent, in extended trading.

The downturn appeared to be driven by management’s forecast for the rest of the year, which remain unchanged from previous projections even though the first quarter turned out to be slightly better than executives predicted three months ago.

Excluding stock option expenses, eBay predicted its full-year earnings will range from 96 cents to $1.01 per share on revenue between $5.7 billion and $5.9 billion. The average estimates among analysts had been earnings of $1.03 per share on revenue of $5.96 billion.

Many investors had been betting eBay would be more bullish, especially after the market’s negative reaction to the company’s cautious January forecast.

“We think it’s prudent at this stage to be conservative,” eBay Chief Financial Officer Robert Swan told analysts during a conference call.

Swan cited three factors that could crimp profits later this year: a recent change that has removed some merchandise from eBay’s search index; increased fraud-fighting efforts that could alienate some sellers; and increased spending to regain market share in Korea.

Once a Wall Street darling, eBay has fallen out of favor as its once-torrid growth has slowed amid stiffening competition internationally.

What’s more, Internet search king Google Inc. has launched a free listing service and online payment system that some analysts view as threats to eBay’s commission-driven auctions and its market-leading PayPal service. In an interview Wednesday, Swan said Google’s new listing service hasn’t affected eBay yet.

The shifting perceptions and challenges swirling around eBay have caused the company’s stock price to plunge by more than 30 percent from its highs reached in late 2004.

Even as its market value has sagged, eBay continues to gain more buyers and sellers. The amount of merchandise sold through eBay during the first quarter totaled $12.5 billion, an 18 percent increase from last year. New listings on eBay climbed to 575.4 million in the quarter, a 33 percent improvement from last year, while registered users increased 31 percent to 192.9 million.

Looking to expand beyond auctions, eBay last year spent more than $4 billion on a series of acquisitions that include Internet phone service Skype and online price comparison service Shopping.com.

EBay also is trying to appeal to more shoppers with next week’s introduction of a fixed-price service that initially will be available only in the United States. Called “eBay Express,” the service allows buyers to place items from multiple sellers into a single shopping basket, mirroring the system used by more conventional Internet merchants.

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