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eBay reports record quarterly revenue

Oct. 17, 2007

Today, eBay reported record quarterly revenue, and a third-quarter net loss of a little over $936 million. However, the auction giant still easily exceeded analyst's expectations for the quarter ended Sep. 30. thanks to revenue of $1.89 billion, up 30 percent from the year-ago quarter.

eBay executives credited these higher numbers to the company's highly successful PayPal electronic payment division, and to higher sales outside of the United States.

Overall, it was the first time eBay reported a loss since the second quarter of 1999, company President and CEO Meg Whitman said. Early in October, eBay announced it would take a $900 million write-down in the value of Skype.

That impairment accounting charge acknowledged that eBay executives drastically overvalued the $2.6 billion Skype acquisition, completed two years ago. eBay also recently said that it paid certain Skype shareholders $530 million to settle future obligations -- a one-time payment known as an "earn-out."

Not taking into account the Skype charges, stock-based compensation expenses and other one-time costs, eBay earned $563.8 million, or 41 cents per share, up 53 percent from $367.4 million, or 26 cents per share for the corresponding 2006 period.

Analysts polled by Thomson Financial expected eBay to earn $456.26 million, or 33 cents per share, on revenue of $1.83 billion. Including the Skype charges, eBay lost $936.6 million, or 69 cents per share in the third quarter of 2007.

For the same quarter in 2006, eBay earned $280.9 million, or 20 cents per share. Last quarter, the online company bought back 14.8 million shares of its own stock for $500 million, part of a $2 billion repurchase program continuing through January 2009.

eBay's stock was up over 6.1 percent in after-hours trade immediately following the news. Whitman characterized the quarter as "strong" but was quick to acknowledge problems with Skype.

On Oct. 1, Skype co-founder and chief executive, Niklas Zennstrom stepped down, when eBay announced the impairment charges. Company chief strategy officer Michael van Swaaij, formerly v.p. for European operations, is now currently the acting Skype CEO.

Whitman said "we are obviously very disappointed by the write-down, and we're behind in terms of some financial metrics we had originally anticipated. However, the steps we took and moving to new management was completely the right thing to do. I actually feel confident in the business longer term."

She added "we put together a set of projections based on what we believed at the time. It's always difficult to forecast the growth of a 2-year-old... It's now a 4-year-old and it's almost the fastest startup in the Internet. It didn't hit the internal milestones we had hoped for, but I do hope the ability to get the earn-out out of the way and reorient the strategy may be back on track."

Whitman also added that eBay is working to integrate Skype into the company's core products more tightly, and it will expand Skype's reach with partnerships. However, she did warn that two years ago, there was little she or other executives could have done differently to offer an acquisition price that more accurately reflected the company's value.

Yesterday, Skype announced a deal with News Corp's MySpace, which will offer free Internet phone calls to members of the social network.

On a different note, eBay said today that revenue from the electronic payment service PayPal was a record $470 million in the third quarter, up 35 percent from the 2006 corresponding quarter.

Overall, it's the third consecutive quarter of profitability for Skype, which had 246 million registered user accounts at the end of this quarter -- up 81 percent from 2006's levels.

eBay, which ended last quarter with $4.4 billion in cash, took in $1.32 billion in sales from eBay.com, shopping.com, StubHub.com and other eCommerce sites -- up 26 percent from a year ago. Of that, 51 percent came from outside the U.S.

Despite reasonable growth in each of eBay's three divisions, the company hasn't been able to maintain the number of listings on its eCommerce sites. Instead, it's wringing more money out of a shrinking number of listings.

Its Skype division reported record revenue of $98 million, up 96 percent from 2006's numbers. Of that, about 82 percent came from outside of the U.S. eBay is now increasingly focused on promoting Skype domestically.

Overall, the number of individual eBay listings dropped approximately 3 percent from 2006's levels, and the site's store listings dropped over 14 percent from last year. Individuals and "power sellers" who operate eBay stores listed 556 million items in the third quarter, down five percent from 2006's corresponding period.

However, those goods sold for a total value of $14.4 billion, which are actually up 14 percent from 2006's numbers.

On Oct. 23, online retailer Amazon.com is slated to report its earnings.


Source: eBay Investor Services

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