eBay earnings beat recession blues

The San Jose, Calif.-based online auction giant reported Thursday that revenue for its third quarter jumped more than 70 percent, as its earnings surpassed Wall Street expectations.

The company posted net income of $18.8 million, or 7 cents a share, on revenue of $194 million. For the same period last year, eBay earned $15.2 million, or 6 cents a share, on $113 million in revenue.

Excluding charges such as stock-based compensation and employer payroll taxes, eBay posted a pro forma profit of $34.9 million, or 12 cents per diluted share. Wall Street analysts expected the company to earn 11 cents per share, according to a survey by First Call.

The company showed decent revenue growth, said Jeetil Patel, who covers eBay for Deutsche Banc Alex Brown. Patel had projected that eBay would earn 11 cents a share on $187 million in revenue.

"In light of what's happened of late, it was a good quarter," Patel said.

eBay CEO Meg Whitman said in a statement: "We continue to be impressed by the strength and resiliency of our user community. We're continuing to see sustained growth across our U.S. and international markets, deeper penetration into many vertical categories and expanded adoption of our fixed-price trading formats."

eBay shares closed up $1.97, or 3.5 percent, to $59.06 in the regular trading session. In after-hours trading on the Island ECN, eBay shares dropped $3.11 to $55.95.

Despite the increase in sales and profits, eBay was not immune to fallout from last month's terrorist attacks. The company lost about $5 million in revenue due to decreased bidding and sales in the aftermath of the attacks, Whitman said.

Although bidding, sales and new-user registrations have since returned to levels seen before the attacks, they are not as high as the company projected, executives said.

"Our momentum during that two- to three-week period was irretrievably lost," Rajiv Dutta, eBay's chief financial officer, said in a conference call after the announcement.

Despite the bump, eBay executives expect the company to continue its strong revenue growth in the fourth quarter. The company increased projections for fourth-quarter revenue to a range of $200 million to $210 million, $5 million more than previously stated.

The amount of goods sold on eBay jumped to $2.4 billion for the quarter, up from $1.3 billion for the same period last year. The auction giant has set a goal for itself of reaching $3 billion in annual revenue on $30 billion in gross merchandise sales by 2005.

In trying to reach that goal, eBay has expanded internationally and has focused on fixed-price trading initiatives. In recent months, the company acquired a stake in Latin American online auction company Mercado Libre on the international front and announced that it would soon integrate its Half.com unit into eBay's U.S. Web site.

During the quarter, eBay's international operations accounted for 16 percent of the company's net revenue, up from 14 percent in the second quarter. Meanwhile, fixed-price sales accounted for 16 percent of the company's total gross merchandise sales during the quarter.

Another part of the company's efforts to diversify its revenue has been advertising sales. During the quarter, 13 percent of eBay's net revenue came from advertising, up from 10 percent in the second quarter.

However, Whitman said the jump was an aberration related to the terrorist attacks' effect on auction revenue. Long term, the company expects that about 11 percent of revenue will come from advertising, she said.

"Certainly it won't go up; probably it will go down," Whitman said during the conference call. "Advertising remains a small percentage of our revenue. We wouldn't expect it to increase."

One area of the company that flagged during the quarter was eBay's offline operations, which include its Butterfield auction house and Kruse International automobile auctions. Revenue from its offline operations dropped to $9 million during the quarter, from $10.5 million in the same quarter last year.

The slump in offline sales was due in part to the Sept. 11 attacks, executives said. More than a quarter of the Butterfield auctions scheduled for the quarter were due to be held after Sept. 11. The attacks significantly affected bidding and sales in those auctions, executives said.