EBay Inc.’s profit surged more than 76 percent on brisk sales of back-to-school computers, but executives cautioned that the online auction company’s gangbuster growth is subject to seasonal variations and could waver next year.
Squeaking past Wall Street’s expectations, eBay announced third-quarter earnings Wednesday of $182.35 million, or 27 cents per share, compared with $103.25 million, or 16 cents per share in the same period of 2003.
Excluding special items, eBay earned $194.97 million, or 28 cents per share, up from $118.33 million, or 18 cents per share, in the third quarter of 2003. Analysts expected San Jose, Calif.-based eBay to earn 27 cents per share, excluding special items, on sales of $779.74 million.
For the three months ended Sept. 30, the company reported revenue of $805.88 million, up 52 percent from the same period last year.
EBay’s transaction revenue in the United States last quarter was $330.6 million, up 29 percent from the same quarter of 2003. Hurricanes in August and September in the Southeast, particularly Florida, may have slightly dented sales, chief financial officer Rajiv Dutta said.
International transaction revenue in the third period surged 82 percent, to $282.3 million. Europeans were particularly enthusiastic compared to last summer, when a brutal heat wave sapped continental demand.
Earnings grew by $5 million during the third quarter, and $22 million so far this year, because of favorable currency exchange rates for U.S. companies that do business abroad.
So far this year, eBay has earned $572.84 million, or 84 cents per share, compared to $299.31 million, or 46 cents per share, in the first nine months of 2003.
EBay — considered one of the most financially conservative in Silicon Valley — boosted its outlook for the rest of the year and provided bullish projections for 2005.
EBay expects 2004 sales as high as $3.25 billion, $65 million higher than its previous outlook. It expects revenue in 2005 to be as high as $4.2 billion, with earnings per share of $1.42.
But executives warned that the company, which is expanding aggressively in China and India, will be increasingly subject to wild seasonal swings and won’t likely report the leapfrog quarter-over-quarter sales and earnings growth that made it famous during the dot-com bubble. Surging sequential growth, as well as year-over-year quarterly growth, has made eBay a Wall Street darling since the late ’90s.
EBay shocked many investors in July, when it reported that second-quarter transaction revenue in the United States slumped 2.2 percent from the first quarter. Aware that the decline prompted a stock sell-off, on Wednesday Dutta warned that sales between the first and second quarters of 2005 could also decline.
“We aren’t trying to manage a quarter to quarter performance,” Dutta said in a phone interview. “We indicated to the Street a long time ago there’d be variability throughout the year.”
EBay executives remained optimistic about the fourth quarter, despite nagging glitches at the lucrative PayPal payment transaction division. PayPal, which has more than 50 million user accounts worldwide, experienced at least five days of intermittent outages earlier this month.
“The cause was unforeseen problems created by the rollout of new code,” chief executive Meg Whitman said in a conference call. “We let our community down, and I want to apologize to our users who were affected by these issues.”
Whitman promised that the PayPal service would remain “robust,” particularly during the holiday shopping season.
Earlier this year, analysts worried about increasing operating expenses at eBay, once known as one of the leanest startups.
EBay’s “general and administrative” expenses — including payments to some accountants, lawyers, consultants and technologists — swelled throughout 2003 and the first half of 2004. Executives cautioned that the company was taking on the expenses of any mainstream retailer, such as giant Wal-Mart Stores Inc.
On Wednesday, executives announced that they kept so-called “G&A” expenses to $105.9 million, or 13 percent of net revenue, down from 14 percent of net revenue in the same period last year.
David Garrity, Internet analyst with Caris & Co., said he’s confident eBay wouldn’t become as bloated as a bricks-and-mortar retailer anytime soon.
“As long as people continue to be introduced to the Internet, and as long as eBay keeps expanding the product lineup on its site, they’ll be in a very strong position,” Garrity said. “This model should have high and rising incremental profit margins. The more traditional retailers should be the ones concerned about eBay.”