Majestic Research

Bloomberg

EBay Earnings Rise 50% on Auction Revenue, PayPal Use

By Danny King
Published: July 18, 2007

EBay Inc., the world’s largest online auctioneer, said profit rose 50 percent after higher fees increased auction revenue and its PayPal unit added more corporate customers.

Second-quarter net income climbed to $375.8 million, or 27 cents a share, from $250 million, or 17 cents, a year earlier, EBay said today in a statement. It forecast third-quarter and full-year profit and sales in line with analysts’ estimates.

EBay, based in San Jose, California, boosted revenue per listing by raising fees last year. That also contributed to a decline in auction listings that was bigger than some analysts estimated. Sales at the PayPal payment-processing unit rose as more people outside the U.S. and more companies used the service.

“They’re getting better at monetizing the listings,” said Martin Pyykkonen, an analyst at Global Crown Capital in Golden, Colorado, who has a “neutral” rating on the stock. “But we’ve had a few quarters in a row of listings declines.”

Sales advanced 30 percent to $1.83 billion, contributing to the fourth consecutive quarterly profit increase.

Listings for fixed-price and auction items fell 6.2 percent to 559 million. John Aiken, the managing director of Majestic Research in New York, had projected a 5.2 percent decline. Tim Boyd, an analyst with American Technology Research in Greenwich, Connecticut, had anticipated a 4 percent drop.

Shares of EBay fell 59 cents, or 1.7 percent, to $33.46 at 7:20 p.m. New York time in extended trading after the earnings were announced. Earlier, they declined 20 cents to $34.05 in regular Nasdaq Stock Market trading. The stock had risen 28 percent in the past 12 months through the close of regular trading today.

Analyst Estimates

Excluding amortization, stock-based compensation and other items, second-quarter earnings were 34 cents a share. Analysts had estimated profit on that basis of 32 cents, the average of 23 projections compiled by Bloomberg. A lower tax rate and share repurchases added 3 cents a share while a weaker dollar added less than 2 cents, Chief Financial Officer Robert Swan said.

EBay forecast third-quarter earnings of 31 cents to 33 cents a share, excluding some items, in-line with the average analyst estimate of 32 cents. Sales will be $1.78 billion to $1.83 billion, EBay said, compared with estimates of $1.8 billion.

The company boosted its forecast for full-year profit by 4 cents to $1.34 to $1.38 a share, excluding some items. It increased the bottom of its projected range of full-year revenue by $100 million to $7.3 billion.

PayPal Growth

Growth at PayPal, which EBay acquired in 2002 for $1.5 billion, exceeded that of auctions. EBay is working to add more business customers for its payment service, and since June has signed agreements with Northwest Airlines Corp. and Southwest Airlines Co., the fifth- and sixth-largest U.S. carriers.

EBay will try to revive auctions growth in the U.S. and Germany, two of the company’s most established markets, Chief Executive Officer Meg Whitman said today in a conference call. EBay said last month that it would cut selling fees for its cheapest items and won’t raise fixed-price item fees this summer.

Revenue from auction and fixed-price sales rose 26 percent to $1.29 billion. The total value of items sold on EBay increased 12 percent to $14.5 billion.

The percentage of EBay visitors who made purchases rose in the quarter, Swan said in an interview today.

At the PayPal unit, revenue climbed 34 percent to $454 million, while the total of processed transactions rose 32 percent to $11.7 billion. Of that, $4.92 billion was from businesses other than EBay, a 57 percent jump.

“Our diversification off EBay has been a significant catalyst for PayPal growth,” Swan said. “Our PayPal growth rate internationally has been quite a bit higher than in the U.S.’”

Skype, StumbleUpon

Revenue at the Skype unit more than doubled to $90 million, and the number of registered users rose 94 percent to 220 million.

In May, EBay paid $75 million to acquire StumbleUpon, gaining an Internet company that helps people find Web sites that interest them and access to 2.3 million more users. Since last quarter, EBay also started a U.S. version of its two-year-old Kijiji.com Web site for classified advertising.