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eBay profits inch forward
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October 26, 1999: 7:50 p.m. ET
Online auctioneer beats expectations, but shares plummet after hours
By Staff Writer Tom Johnson
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NEW YORK (CNNfn) - Online auction house eBay Inc. used a large increase in merchandise sales to post a narrow third-quarter profit gain Tuesday, beating Wall Street's expectations by a penny.
However, the company also recorded a large jump in expenses and failed to grow revenues in tandem with its explosive growth in sales and users, causing its stock to drop significantly after hours.
The San Jose, Calif.-based company posted net earnings of $3.2 million, or 2 cents a diluted share, excluding non-cash charges, for the quarter ended Sept. 30. That was up slightly from the $1.8 million, or 2 cents a share, during the comparable quarter last year.
The consensus analyst forecast, as compiled by First Call Corp., was for earnings of 1 cent per share. The results were announced after the markets closed.
However, investors quickly trimmed more than 7 percent off the company's closing stock price Tuesday of 152 in after hours trading.
Analysts attributed the drop to several factors, including rising expenses and lower than expected growth in revenue that spooked investors.
"If you look at stocks that trade with very high revenue-per-user expectations, I think the market expects to beat those expectations every time," said Shaun Andrikopoulos, an analyst at B.T. Alex Brown. "We just didn't see the growth we've become accustomed to."
eBay grew its quarterly net revenues 169 percent to $58.5 million in line with expectations. But gross merchandise sales through eBay's Web site climbed more than 280 percent to $741 million during the quarter, while registered users climbed more than 500 percent to 7.7 million.
Analysts said investors were disappointed that such a surge in the number of users and jump in sales didn't translate into even higher revenue.
The lower stock price "has to do with the fact that you blew out the customer growth and you blew out the sales growth, but the general merchandise sales and overall sales were in line," said John Segrich, an analyst with CIBC Oppenheimer.
Segrich said the company offered little guidance in a conference call following the earnings announcement as to whether that trend might reverse itself during the fourth quarter, other than to attribute the lower ratio to "seasonal decreases" in auction revenues. Company officials said they were comfortable with analysts' fourth-quarter estimate of a 2 cents per share profit.
Also of some concern were the company's sales and marketing expenses, which increased nearly three-fold to $27.2 million as eBay ramped up its online marketing through various strategic alliances, including one with America Online (AOL).
The company said expenses also were hurt by the additional staff and redundant computer systems it added to try to prevent outages that have plagued its site
Also contributing to earnings was more than $7 million in cash sitting on the company's balance sheet.
For the year so far, eBay has earned $13.32 million, or 10 cents per share, up from $8.83 million, or 8 cents per share, last year.
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eBay
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