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Online auctioneer's profit up 70%

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CIOL Bureau
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PALO ALTO: Online auctioneer Ebay Inc. has posted a third-quarter profit that rose almost 70 percent but offered a forecast for 2004 sales that failed to top Wall Street's bullish expectations, prompting an after-hours sell-off of its stock.



Shares in Ebay, which have almost doubled over the past year, dropped about 6 percent in after-hours trade in response to the forecast for 38 percent sales growth in 2004.



That projected gain was seen as conservative given the high hopes that investors have brought to the online seller of everything from collectible cars and designer handbags to Beanie Baby toys and power tools, analysts said.



San Jose, California-based Ebay posted earnings of $103.3 million, or 16 cents per diluted share. That included the impact of Ebay's acquisition of Chinese auction Web site EachNet and technology investments related to its global auction business and its PayPal online payments business.



Excluding items, the company's profit was 18 cents a share. Revenues grew 84 percent to $530.9 million.



The results matched analysts' average estimate for profits before charges, and topped the average revenue estimate of $519 million, as tracked by Reuters Research, a unit of Reuters Group Plc.



But analysts also noted some signs that Ebay's spectacular growth is slowing in some key areas, including listings and gross merchandise sales -- the total value of all goods sold.



"Ebay continues to be a very dynamic business that has some challenges over the near and medium term," Pacific Growth Equities analyst Derek Brown said.



SLOWDOWN IN GERMANY



A seasonal slowdown in Germany, Ebay's strongest overseas franchise, was more pronounced than in the past, Chief Executive Meg Whitman said in a conference call with analysts.



At the same time, Ebay is investing more than anticipated in its business, which dampens its profits.



Borrowing a page from its U.S. playbook, Ebay has launched a television advertising campaign in Germany to spur growth in that market, Whitman said .



Investors are hypersensitive to any sign of a cooling off in Ebay's growth because of its pricey valuation. Shares underwent a two-for-one split this summer and closed at $57.50 on the Nasdaq, up almost 100 percent from a year ago.



The company's market value is just over $37 billion -- rivaling the most recently reported gross national income of Nigeria and making it almost 50 percent bigger than General Motors Corp., the world's largest automaker.



The stock also trades at about 59 times next year's projected earnings compared with a ratio of about 18 for the S&P 500.



Looking ahead, Ebay raised its guidance for 2003, saying earnings excluding items could be as high as 72 cents per diluted share, 1 cent higher than its previous guidance. Revenues were seen reaching up to $2.1 billion.



Adjusting for a litigation charge to second-quarter results, analysts polled by Reuters Research expected 2003 earnings, before items, of 72 cents per share, and revenues of $2.09 billion.



STILL GROWING



For 2004, Ebay forecast revenues as high as $2.9 billion and earnings, excluding items, of up to 98 cents per share.



Analysts, on average, expected Ebay to post 2004 revenue of $2.89 billion. Profit estimates had ranged from 96 cents a share to $1.14 a share.



Analysts have grown accustomed to Ebay issuing guidance ahead of their own estimates, and investors punish the company and other fast-growing firms when they do not further crank up already high expectations.



U.S. Bancorp Piper Jaffray analyst Safa Rashtchy called Ebay's 2004 profit forecast "conservative" and said it left the company some room to deliver more.



Rashtchy agreed that Ebay's growth is slowing a bit faster than expected, but noted that it re-accelerated its U.S. business after a similar bump about one year ago.



"It would be premature to write off Ebay as a growth story," he said.



Reuters

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