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EBay's quarterly profit jumps 40 percent

Shares of eBay Inc. tumbled Thursday after the online auction pioneer posted strong third-quarter profits but offered a reduced outlook that failed to impress Wall Street.
/ Source: The Associated Press

Shares of eBay Inc. tumbled Thursday after the online auction pioneer posted strong third-quarter profits but offered a reduced outlook that failed to impress Wall Street.

For the fourth quarter, eBay said after the markets closed Wednesday it now expects earnings of 21 cents a share — 1 cent below the current Wall Street estimate — on revenue of $1.25 billion to $1.29 billion, reflecting the impact of its acquisition of Internet phone provider Skype Technologies SA and the pending $370 million purchase of an online payment business from Internet services company VeriSign Inc.

In the third-quarter ended Sept. 30, San Jose-based eBay said it earned $255 million, or 18 cents per share, an increase of 40 percent compared with $182.3 million, or 13 cents per share from the year-ago period.

If not for one-time items, eBay said it would have earned $280.2 million, or 20 cents per share, matching analysts earnings-per-share expectations, according to Thomson Financial.

Revenue for the period totaled $1.106 billion, a 37 percent increase from last year’s $805.9 million. Analysts were expecting revenue of $1.08 billion, according to Thomson.

“With their Q4 guidance, the growth rate probably wasn’t as impressive as investors were expecting,” said David Edwards, analyst with American Technology Research. “But my expectation is that they’ll have a real strong fourth quarter.”

For the full year, the company said it expects revenues to be between $4.47 billion to $4.51 billion, compared to analysts’ forecasts of $4.43 billion.

EBay, the leading e-commerce player, has been battling skepticism about its acquisition of Skype Technologies. Many analysts have questioned both the price tag — at least $2.6 billion — and the companies’ compatibility.

EBay said Wednesday that Chief Financial Officer Rajiv Dutta will become Skype’s president, after his successor is named. Dutta will remain a member of eBay’s executive team, the company said.

In a conference call with analysts, eBay CEO Meg Whitman defended the Skype purchase, saying the merger will help eBay expand its existing services and reach more users. For one, Skype users will be able to pay their bills automatically via PayPal, eBay’s online payment business, Whitman said.

Privately held Skype — founded by the creators of Kazaa, the file-sharing program that riled the music business — gives away software that lets people talk for free over the Internet using computers and microphones. A paid version, SkypeOut, allows those calls to be connected to regular phones.

In a telephone interview, Dutta refused to elaborate on new services that would stem from the merger. “But certainly, Skype is an opportunity that is truly transformational for eBay, much as PayPal was a few years ago,” he said.

Despite the company’s reassurances about Skype, analysts say it’s still too early to tell whether the acquisition will ultimately accelerate eBay’s business or hurt it.

“There are too many wild cards around Skype,” said Derek Brown, analyst at Pacific Growth Equities, which has a “sell” rating on eBay.

EBay said it had more than 168 million registered users by the end of the third quarter, a jump of 35 percent from last year.

PayPal, a main revenue source for eBay, posted a total of 86.6 million accounts in the third quarter, up 53 percent from the year-ago period. The division achieved a record amount of $6.7 billion in transactions in the quarter, generating $247 million in revenue, up 44 percent from the same period last year.

EBay’s other key measures, including active users and the amount of merchandise bought on its site, also increased by hefty amounts from last year.