EBay profit up

Michael Kahn

SAN FRANCISCO: Online marketplace eBay Inc. posted a quarterly profit that more than doubled on growth in international operations, but offered a full-year forecast below bullish Wall Street expectations, sending its shares down 5 percent in after-hours trade.

Results for the June quarter slightly topped average analysts' estimates, but investors reacted instead to the cautious forecast and Ebay's view that sales of merchandise on its Web site were settling into a seasonal pattern typical of mature retailers.

Lofty growth expectations have driven eBay's shares to a multiple of 65 times forecast 2004 earnings -- almost four times the average for the S&P 500 index -- leaving stock in the Internet bellwether vulnerable to a sell-off on any disappointment , analysts said.

"We thought the shares would trade down on an in-line quarter," said Mark Mahaney, an analyst with American Technology Research, who owns no eBay shares. "The aftermarket action doesn't surprise us.

Analysts also took note when eBay Chief Executive Meg Whitman underscored a seasonal factor in its quarterly results.

"There is no question that seasonal trends are becoming more pronounced as eBay becomes more mainstream," Whitman told an investor conference call. "In light of this ... seasonal shift, our results were strong and consistent with our business."

For the quarter, the San Jose, California-based company posted net income of $190.4 million, or 28 cents per share, compared with $91.9 million, or 14 cents per share a year earlier.

Excluding items, eBay's profit rose to $197.7 million, or 29 cents per share. On that basis, Wall Street analysts had expected the company to post net income of 27 cents per share, on average, on revenue of $769.4 million, according to Reuters Estimates.

U.S. transaction revenues fell about 2 percent to $319.1 million from the first quarter even though they were up on a year-over-year basis.

VALUATION IN QUESTION

David Garrity, an analyst at Caris & Company, said investors may have been spooked by eBay's reference to seasonal factors.

"If that is the language the company is using to describe itself, the subtext to that message is maybe the valuation should be lower, more in line with everyday companies," said Garrity, who owns no eBay shares.

EBay forecast full-year 2004 earnings, excluding certain items, as high as $1.17 per share, 4 cents higher than its most recent forecast, but just below the average per-share analyst forecast of $1.18.

The company -- which tends to be conservative in its estimates -- also raised its 2004 revenue outlook by $35 million to $3.19 billion, shy of the average estimate of $3.21 billion.

Ebay is an online bazaar where sellers ranging from hobbyists to large retailers like Sears, Roebuck and Co. offer their wares via auctions or newer fixed-price sales.

For the second quarter, Ebay said total revenue rose to $773.4 million from $509.3 million while international transaction revenue increased 76 percent to $273.4 million. The total value of sold goods rose to $8 billion, Ebay said.

Shares in Ebay have fallen steadily since late June but are still up about 50 percent from the low of just under $51 in November last year.

EBay shares dropped 5 percent to $72.80 in after-hours trading on INET from a close of $76.60.

(Additional reporting by Duncan Martell)