eBay profits from growth across the business

eBay matched Wall Street's expectations for revenue and earnings per share in its second quarter, helped by what the company described as solid growth across its entire business.

Revenue came in at US$1.41 billion, up 30 percent compared with 2005's second quarter, the company said Wednesday. Meanwhile, eBay had net income of US$250 million, or US$0.17 per share. Pro-forma net income, which excludes certain items, was US$351 million, or US$0.24 per share.

The revenue and pro-forma earnings per share results matched the consensus estimate from financial analysts polled by Thomson Financial.

In eBay's core marketplace, revenue grew 22 percent to US$1.03 billion, while its PayPal online payments unit grew its revenue 39 percent to US$339 million. The company's Skype Internet telephony business saw its revenue grow 26 percent to US$44 million for the quarter, which ended June 30.

However, eBay executives said during a conference call that core marketplace revenue and gross merchandise volume (GMV) should have grown more. They blame an imbalance between eBay's traditional product listings, which include both auction and fixed priced products, and store inventory listings, which on average now make up 83 percent of active marketplace listings.

To increase traditional listings, eBay plans to market them more aggressively, increase their exposure on the recently-launched eBay Express specialty site and raise store listing fees, said Meg Whitman, eBay's president and chief executive officer.

"We're confident these changes will rebalance our marketplace and revitalize GMV growth rates," she said.

Store listings take longer to sell and are more costly for eBay to host, compared with traditional listings, she said. Store listings take on average 14 times longer to sell than traditional listings, and the cost of hosting store listings is more than 50 percent higher. Meanwhile, traditional listings account for 91 percent of the marketplace's gross merchandise value.

"Too many items in the store inventory format have caused the buyer experience to suffer. The marketplace has been overwhelmed with identical and often poorly-priced items that have diluted the magic of the eBay experience," she said.

This has resulted in fewer return visits, higher exit rates and fewer hits per listing, she said. In turn, conversion rates and successful listings have declined and GMV growth has suffered, she said. GMV, which is the value of all successfully closed items on the eBay marketplace, reached US$13 billion during the quarter, up 18 percent.

The new, higher fees for eBay stores go into effect on August 22. More details about the increases is at http://www2.ebay.com/aw/core/200607191343242.html.

Net income fell when compared with 2005's second quarter, when eBay achieved US$291.6 million, or US$0.21 per share. However, 2006's second-quarter net income was calculated with a new accounting standard for stock-based compensation, and the year-ago quarter wasn't, eBay said. The new accounting method shaved US$60 million, or US$0.04 per share, from eBay's earnings in this year's second quarter. Regarding pro-forma net income, it increased 14 percent compared with 2005's second quarter.

EBay also announced it plans to repurchase up to US$2 billion of its stock within the next two years.

EBay expects revenue to be between US$5.7 billion and US$5.9 billion for the full year, and between US$1.35 billion and US$1.43 billion in the third quarter. The company expects earnings per share to be between US$0.69 and US$0.72 for the full year and between US$0.15 and US$0.17 in the third quarter.

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