Bloomberg News

EBay Sales Exceed Estimates on PayPal, Holiday Shopping

January 20, 2012

(Updates share prices in fifth paragraph.)

Jan. 19 (Bloomberg) -- EBay Inc., the largest Internet marketplace, reported sales and profit that topped analysts’ estimates, buoyed by a campaign to promote its expanded retail offerings and broader use of the PayPal online-payments service.

Fourth-quarter revenue rose 35 percent to $3.38 billion, EBay said yesterday in a statement. That compares with the average analyst estimate of $3.32 billion, according to data compiled by Bloomberg. Profit excluding certain items was 60 cents a share, compared with the average prediction of 57 cents.

Chief Executive Officer John Donahoe, eager to propel a stock price that’s little changed since he took over in 2008, boosted marketing spending 25 percent last year and upgraded EBay’s technology to lure back users who defected to rivals such as Amazon.com Inc. EBay is also getting a lift as PayPal challenges traditional payment systems by persuading a larger pool of shoppers to use it more often and for bigger purchases.

“EBay right now has very consistent results,” Colin Gillis, an analyst at BGC Partners LP in New York, said in an interview. “PayPal is still adding over a million users a month, marketplaces is doing fine, and they continue to position well for mobile.”

EBay rose 4.4 percent to $31.66 at 10:58 a.m. in New York. Shares of the San Jose, California-based company had gained 3 percent in the 12 months before today.

The company benefited from a 15 percent gain in total holiday e-commerce spending, which rose to a record $37.2 billion, according to research firm ComScore Inc., based in Reston, Virginia.

Fastest-Growing Division

At PayPal, EBay’s fastest-growing division last quarter, revenue rose 28 percent and registered users jumped to 106.3 million. The unit is expanding its roster of merchant partners, taking aim at Visa Inc. and MasterCard Inc.’s credit card- swiping customers. swiping customers. PayPal’s mobile payment volume will rise to $7 billion this year from $4 billion last year, EBay executives said on a conference call.

PayPal is working with Home Depot Inc. to let shoppers use the payment system at checkout, and the companies this week will extend a trial of the service to 51 stores, primarily in the San Francisco area, Donahoe said on a conference call yesterday.

Retailer Ties

EBay has been bolstering ties with big retailers, seeking to offer goods from more stores through its June acquisition of GSI Commerce Inc. for $1.9 billion.

“The experience that EBay and PayPal have in the virtual world with online payments and the addition of GSI Commerce --it gives them a line of logic and a set of disciplines that are easy to carry into an in-store experience,” said Bill Smead, who holds EBay shares as part of $175 million in assets at Smead Capital Management Inc., said in an interview.

Payment volume from in-store terminals will be “immaterial” to the company’s 2013 projections, Chief Financial Officer Bob Swan said on the call. EBay expects to profit from in-store payments over the next three to five years, said Donahoe, who is serving as interim president of the PayPal unit after Scott Thompson left earlier this month to become CEO of Yahoo! Inc.

“What we’re doing with PayPal point-of-sale, it’s very analogous to what we did with the merchant-services business five years ago,” Donahoe said in an interview. “Year one was planning and building the product. Year two, which is this year for point-of-sale, is trial and learn. Year three is scale it.”

Net Income

Fourth-quarter net income was $1.98 billion, or $1.51 a share, compared with $559.2 million, or 42 cents, a year earlier, EBay said. The recent period’s results included a gain from the sale of the company’s investment in Skype Technologies SA. Microsoft Corp. acquired Skype last year for $8.5 billion.

Revenue in the first quarter will be $3.05 billion to $3.15 billion, EBay said. Excluding some costs, profit will be 50 cents to 51 cents a share. Analysts on average had projected sales of $3.16 billion and profit of 54 cents, according to data compiled by Bloomberg.

EBay is reaping the benefit of money spent to begin overhauling its brand, which consumers have historically associated with online auctions, BGC’s Gillis said. A portion of that investment has been used to spur purchases on its website through mobile applications. The retailer projects it will reach $8 billion in sales volume through mobile apps this year, compared with $5 billion in 2011.

Marketing Expenses

“They’ve put a lot of technology investment into the marketplaces platform,” Gillis said. “They’ve got to get users to re-engage. They need to do a brand makeover. It’s not your collectible site.”

Operating margin narrowed to 22.3 percent in the fourth quarter, compared with 23.7 percent in the same period last year. The decrease came primarily because of four acquisitions the company completed in 2011, EBay said. Marketing expenses rose to $2.44 billion in 2011.

EBay is touting itself as a buy-it-now retailer akin to Amazon, whose stock has more than doubled since March 2008, dwarfing EBay’s growth since Donahoe became CEO. Still, the market could benefit from two e-commerce giants, Gillis said.

“If you want something that’s last season or something that has been refurbished or used, EBay gives you that range of pricing options,” he said. “It’s the difference between the mall and the outlet mall. Is there room for both? Of course.”

--Editors: Jillian Ward, Nick Turner

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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