Majestic Research

Investor's Business Daily

Strong Holiday Sales, PayPal Lift eBay's Q4 Results

By Doug Tsuruoka
Published: January 23, 2008

EBay on Wednesday handily beat fourth-quarter views on strong holiday sales, but its outlook this quarter fell short of expectations and it said 10-year CEO Meg Whitman is stepping down.

Whitman’s departure had been rumored for days. She will be replaced by John Donahoe, president of eBay’s marketplaces unit, as of March 31. She will remain on the company’s board.

EBay shares were down about 6% after hours, after it released results and news of Whitman’s departure and after gaining nearly 7% in regular trading.

The San Jose, Calif.-based Internet auction leader reported per-share profit of 45 cents, excluding charges such as stock-based compensation, up 45% from 31 cents in the year-ago quarter. Analysts polled by Thomson Financial were expecting 41 cents.

Sales rose 27% to $2.18 billion. Analysts were expecting $2.14 billion.

The company said net profit rose 56% to 39 cents.

PayPal, eBay’s online payments service, posted a hefty revenue gain of 35%, to $563 million.

Revenue at Skype, eBay’s Internet phone business, soared 76% to $115 million.

“We’re very pleased with the results for the quarter, which were strengthened by a solid holiday shopping season,” Whitman said in a statement.

EBay said 54% of its marketplaces unit revenue, which includes the auctions business and more, came from outside the U.S. JPMorgan analyst Imran Khan wrote in a note to investors Wednesday that international listings are up 17.7% so far this quarter from a year earlier.

“The international side was a strong driver,” Standard & Poor’s analyst Scott Kessler said. He says various reports show that auction listings in Europe rose smartly in the fourth quarter.

But Kessler added that at a time when world markets fear a possible recession: “The big questions with eBay are how bad is the economy, and how bad is it going to get?”

For the full year, eBay said profit, minus items, rose 46% to $1.53 a share from $1.05. Sales rose 29% to $7.7 billion.

But the company estimated first-quarter 2008 sales at $2 billion to $2.05 billion, where analysts were expecting $2.15 billion. It estimated per-share profit, minus items, at 37 cents to 39 cents, where analysts were expecting 40 cents.

EBay’s marketplaces business, which besides auctions includes Shopping.com and the StubHub ticket-selling business, saw revenue rise 21% to a record $1.5 billion.

Gross merchandise volume, the value of all goods and services sold on eBay, rose 12% to $16.2 billion last quarter.

But there are worries.

Market tracker Nielsen Online said in a report this week that traffic to eBay’s Web site fell 6% to 66.5 million unique visitors in the fourth quarter vs. the year-ago quarter.

Gross merchandise volume has been growing at a slower pace over the past year, as eBay gradually has surrendered market share to e-commerce rivals, including Amazon.com.(AMZN) The company’s stock price has fallen more than 27% since October.

“EBay’s not in the best position right now,” said Majestic Research analyst John Aiken. "They will be affected by what’s happening in the economy as a whole.”

But S&P’s Kessler says more people might turn to eBay’s auctions in a recession to sell unwanted items or to buy goods and service for lower prices.

On a conference call with analysts, Whitman said, “Ten years was about the right time for any CEO to stay at the helm of a company,” something she’s said before.

Analysts agreed.

“The eBay (business) model might need a fresh set of eyes to look at it,” Majestic’s Aiken said.

“The company and its share price could be reinvigorated by new leadership,” S&P’s Kessler said.

Whitman’s successor, Donahoe, said on the conference call that eBay plans to lower fees sellers pay for new listings. He says eBay also will cut final transaction fees for items sold on eBay, with details to come in the next week.