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EBay beats expectations as profit surges

/ Source: The Associated Press

EBay Inc. is trying to wring more money out of every customer and purge the online auction site of shoddy sellers, a business strategy that executives say has already pumped profits.

The company reported Wednesday that first-quarter profit surged 52 percent, trouncing Wall Street expectations thanks to big-spending shoppers overseas and scorching performance of its PayPal electronic transaction division.

EBay earned $377.2 million, or 27 cents per share, for the three months ended March 31, compared with $248.3 million, or 17 cents per share, in the year-ago period. First-quarter revenue totaled $1.77 billion, up 27 percent from $1.39 billion a year ago.

Excluding charges unrelated to ongoing operations, eBay earned $460.5 million, or 33 cents per share, up 34 percent from the same quarter last year.

On that basis, which does not comply with generally accepted accounting principles, eBay was expected to earn $408.72 million, or 30 cents per share, on sales of $1.72 billion, according to analysts polled by Thomson Financial.

EBay reported the results after markets closed Wednesday. Its shares climbed $1.23, or 3.6 percent, in extended trading after closing down 75 cents to $34.45 on the Nasdaq Stock Market.

The first-quarter gains came despite lackluster growth in the total number of listings on the world’s largest online auction site. Users posted 588 million listings last quarter, up only 2 percent from the 575 million in the year-ago period — a far smaller growth rate than eBay typically records.

EBay President and Chief Executive Meg Whitman said slower growth was the logical outcome of an ambitious effort to reduce the amount of overpriced commodity items that clog the site. Last year, the site was clogged with thousands of cell phone chargers, chintzy digital cameras, outdated MP3 players and other electronic devices — and they often carried unrealistically high starting bids and reserve prices. Many got zero bids.

“I think we made a couple mistakes in the middle of last year,” Whitman told The Associated Press. “We frankly had too many items on the site.”

The company is tweaking seller fees to encourage smaller starting bids and discourage sellers from listing huge numbers of similar items. Representatives have been calling individual sellers, reminding them to abide by fair-use policies. And eBay is taking a more active role in combating the growing incidence of fraud, identity theft and privacy invasions.

As a result, Whitman said, the site has a higher quality of items, and the prices are more in sync with their market values. During the quarter, 82.9 million active eBay users exchanged $14.28 billion in goods, ranging from pricey real estate and cars to toys and shoes.

“Conversion rates are going back up, so sellers are seeing more success — and if history is any guide, supply follows demand,” Whitman said. “We always anticipated a lag in listings growth. We are not unduly concerned.”

Tepid growth in listings didn’t worry Rick Munarriz, a senior analyst in media, technology and the Internet for The Motley Fool. He said it was a logical consequence of purging shoddy sellers.

“Last year, they were a trailer park, and this year they want to be a luxury condo,” Munarriz said. “The current users are being milked more, but they keep coming back, so the formula is working.”

David M. Garrity, director of research at New York-based Dinosaur Securities LLC, praised the company’s strategy to wring more money from users. But he emphasized that eBay — one of the few dot-coms to survive the shakeout starting in 2000 — needs to attract new users. The Web site should be far more interactive and addictive, lest it become the target of a private-equity takeover, he said.

“Being a social networking site for Web 1.0 was wonderful,” Garrity said. “But it leaves open the question about whether they’ll have that position with web 2.0 or, shall we say, Web N.0.”