EBay posts loss on charge, but auctions strength

EBay Inc said on Wednesday it had a strong quarterly performance in auctions, masked by a big net loss due to a write-down, and that its full-year earnings would be at the top end of expectations.

The third-quarter net loss of $936 million, or 69 cents per diluted share, compared with a year-ago profit of $281 million, or 20 cents per diluted share. The loss stemmed from a $1.39 billion write-down on eBay's takeover of Internet phone service Skype.

But excluding that and other one-time items, the world's largest online auctioneer and payments company posted an adjusted profit of $564 million, or 41 cents per diluted share, representing a 53 percent rise over a year ago.

Wall Street analysts, on average, had been looking for a profit, excluding the Skype write-down and some one-time items, of 33 cents per share, according to Reuters Estimates.

It was a pretty impressive beat, but obscured by the Skype impairment charges, Sanford C. Bernstein analyst Jeffrey Lindsay said. Because of the strong results, they've decided to bite the bullet on Skype, which was giving it an overhang of uncertainty.

EBay declined to comment on its 2008 outlook since various positive and negative factors made forecasting at this point difficult. Chief Financial Officer Bob Swan said the need to invest in new business and rapid growth in lower-margin businesses like Skype and online payments service PayPal could hurt margins overall.

Third-quarter revenue rose 30 percent to $1.89 billion, topping the current range of quarterly Wall Street forecasts.

Results were driven by a combination of somewhat stronger performance in our big markets, as well as newer, faster growing businesses, President and Chief Executive Meg Whitman said, citing its top markets in the United States and Germany.

The company's effective third-quarter tax rate, excluding one-time items, was 10 percent, down from 27 percent in the same quarter a year earlier. Tax benefits arose from a favorable tax ruling tied to prior quarterly periods and a shift in business to more favorable business climates.

About a penny per share of operating earnings came from translating foreign currencies into dollars, she said.

A good chunk of the over-performance was execution, Whitman said, although the tax benefits, foreign currency gains and eBay's ongoing share buybacks also figured strongly.

Skype had revenue of $98 million in the quarter, up 96 percent from a year earlier, making it the third quarter in a row of profitability for the unit. It has signed up 246 million registered accounts, up 81 percent in a year.

This is still a rapidly growing business, Whitman said.

PayPal revenue grew 35 percent to $470 million in the quarter.

CORE STRENGTH

Revenue from eBay's core marketplaces business grew 26 percent from a year earlier to $1.32 billion, in line with its growth rate in the second quarter, but above the 22 percent to 24 percent rate the business had seen in prior quarters.

Results in marketplaces -- auctions, classified merchandise and fixed-price shopping -- were driven by a strong performance in its international business, especially in Germany, as well as its PayPal Merchant Services business, which provides online payment services to sites off of eBay's own, Whitman said.

Also contributing were advertising deals struck a year ago with Yahoo Inc in the United States and Google Inc in Europe.

Advertising and related revenue generated 4 percent of its marketplace revenue, up 67 percent from a year ago, eBay said.

The company is going a long way in proving it has turned business around, said Stifel Nicolaus analyst Scott Devitt.

Everything seems fine, except Skype, RBC analyst Jordan Rohan said. It seems like everything is under control but the Skype write-off reminds you that eBay is not infallible.

For 2007 as a whole, eBay said it expected earnings per share, excluding one-time items, of $1.47 to $1.49, well above the earnings Wall Street expected, which ranged from $1.35 to $1.41 per share, according to Reuters Estimates.

The company said it expected net revenue for 2007 in a range of $7.60 billion to $7.65 billion, well above the average analyst forecast of $7.49 billion but at the top end of the $7.41 billion-to-$7.64 billion range of analysts' forecasts.

EBay shares gained 5.2 percent to close at $40.60 in regular-session trade on Nasdaq prior to the report. Following publication of the results, its shares rose as much as 7 percent before easing back to about $41, up another 1 percent.

The stock is up 35 percent so far this year. By contrast, the Nasdaq is up 15.6 percent.