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EBay's profit soars, but stock declines 5.7%

Posted by iTech - 2005-10-20

Online trading company eBay on Wednesday reported another strong quarter, with profit surging 40 percent, but investors worried about its outlook for future quarters and drove down its stock in after-hours trading.
EBay earned $255 million, or 18 cents a share, for the quarter that ended Sept. 30, compared with $182.3 million, or 13 cents a share, for the same period a year ago.

Excluding one-time items, the San Jose company earned $280.2 million, or 20 cents a share, in line with what Wall Street analysts were expecting, according to Thomson Financial.

Sales, meanwhile, totaled $1.1 billion, a bit higher than what analysts were expecting and a 37 percent jump over the same quarter a year ago.

``I could not be more pleased with the health of the business,'' said Rajiv Dutta, chief financial officer.

Although eBay's quarter was typically strong, investors appear to be worrying about eBay's future growth prospects. EBay now expects to earn 21 cents a share for the fourth quarter, a penny a share below what Wall Street had been expecting. For 2006, eBay forecast revenue of $5.7 billion to $5.9 billion.

In after-hours trading, eBay shares dropped 5.7 percent to $39.62.

Pacific Growth Equities analyst Derek Brown said he would have expected a more optimistic outlook for the coming quarters given that eBay recently acquired several companies -- including Shopping.com and Internet phone company Skype Technologies -- that will add $450 million to revenue next year.

``It implies slower-than-expected growth in their existing businesses,' Brown said.

EBay said Germany was again one of its top-performing markets, though the company did not release detailed information about its performance in the country.

EBay has been tweaking the German site throughout the year to make its listings show up better on search engines, in addition to other changes. The moves are paying off, Chief Executive Meg Whitman said.

``What we're seeing here is these are very young businesses that are very responsive,'' Whitmam said. ``When you take action, you can move the needle pretty fast.''

Despite the strength of the German market, eBay's international growth continued to slow as it moves out of the initial hyper-growth stage in various markets. International revenue grew 43 percent over the same quarter a year ago -- still very strong, but down from 51 percent for the second quarter and 52 percent the quarter before that.

In fact, international revenue actually declined 2 percent compared with the second quarter.

Dutta said in an interview that the slowdown was expected, ``particularly in Europe, where you see a fall-off'' in the summer months.

Summer is typically slower for online retailers. But Brown said this appears to be the first time that eBay's international growth rate has fallen from one quarter to the next.

Meanwhile, eBay said the number of registered users has jumped 35 percent since last year to 168 million. Its PayPal unit recorded 86.6 million accounts in the third quarter, up 53 percent from the year-ago period. PayPal generated $247 million in revenue, up 44 percent from the same period last year.

Also Wednesday, eBay announced a key management change. Dutta, who has been the company's chief financial officer for five years and is well-liked on Wall Street, will become president of Skype Technologies and relocate to London, at Whitman's request.

Dutta will remain CFO until a replacement is found. He said in an interview that the company will look outside for a successor.

Contact Michael Bazeley at mbazeley@mercurynews.com or (408) 920-5642, and read his blog at www.siliconbeat.com.

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