January 22, 2009

Recessions Drops eBay’s Fourth-Quarter Earnings

The current recession seems to be affecting eBay's Internet auctions just as much as it has hurt traditional retail sales, as the company's fourth-quarter earnings fell 31 percent.

The poorly projected fourth-quarter along with analysts' expectations dropped eBay shares more than 6 percent in after-hours trading.

The company announced on Wednesday it earned $367 million, or 29 cents per share, in the quarter"”down from $531 million, or 39 cents per share, in the quarter just a year ago.

The prediction of analysts polled by Thomson Reuters showed that excluding one-time items in the most recent period, eBay earned 41 cents per share"”2 cents higher than analyst's predications. Meanwhile, revenue fell 6 percent to $2.04 billion, missing analysts' expectations for $2.12 billion.

EBay mostly attributed the decline to the recession and the strengthening of the dollar, as deals done in other currencies now translate into fewer dollars.

Chief Executive John Donahoe told the Associated Press that the company knew it would be a difficult fourth quarter, as consumers held on to their money.

"They wanted to make sure every dollar counted," he said.

And unlike previous years, there was no "Ëœgotta-have-it' gift item during this holiday season. EBay often benefits from the scarcity of such products by becoming one of the few places shoppers can still buy them, Donahoe said.

However, revenue climbed almost 11 percent to $623 million in the company's PayPal unit, which handles online payments for eBay and other sites, and the company's number of active users, an important measure of how well eBay is attracting new buyers and sellers, rose almost 4 percent to 86.3 million.

But the Internet auction site's gross merchandise volume"”the total amount of money that flows from transactions on the site, excluding those involving vehicles"”dropped 12 percent to $11.5 billion, marking the second quarter in a row in which this metric has declined"”something that never happened to the company until last year.

Over half of eBay's fourth-quarter gross merchandise volume (51 percent) came from auctions; the other 49 percent came from sales of fixed-price items, which have been steadily rising and made up 46 percent of the company's gross merchandise volume in the third quarter.

"The shift reflects the ongoing evolution of eBay," said Donahoe.

"When we looked at the results of the fourth-quarter, there was really nothing that stood out that was either more negative or, on the flip side, there wasn't anything that was more positive," said Cowen and Co. analyst Jim Friedland.

EBay earned $1.78 billion, or $1.36 per share for the full year. Revenue totaled $8.54 billion.

The company expects new first-quarter earnings of 21 cents to 23 cents per share, or 32 cents to 34 cents when excluding one-time items. The company forecast revenue of $1.8 billion to $2.05 billion for the period.

Analysts were expecting adjusted earnings of 40 cents per share on $2.1 billion in revenue in the current quarter.

Donahoe said during a quarterly conference call with analysts that the macroeconomic environment will continue to be extremely challenging in 2009.

He reiterated that the company has planned conservatively for this year.


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