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eBay tumbles on reduced guidance
Shares sink sharply after the online auction site trims profit forecasts for 4th quarter and 2006.
October 19, 2005: 7:35 PM EDT
By Amanda Cantrell, CNN/Money staff writer

NEW YORK (CNN/Money) - Shares of eBay tumbled about 6 percent in after-hours trading Wednesday after the online auction site reported third-quarter results in line with forecasts but issued guidance for the current quarter that disappointed Wall Street.

eBay reported third quarter net profit jumped 40 percent and that earnings per share excluding certain items came in at 20 cents a share, close to most forecasts.

But the company also said it expects earnings of 21 cents a share for the fourth quarter excluding certain items, while Wall Street analysts were expecting 22 cents a share, according to Thomson First Call.

For 2006, eBay said it expected earnings per share in a range of 96 cents to $1.01, but the Street was looking for $1.03 a share, according to Thomson First Call.

"I think (the results) are in line with what people were expecting, but guidance is less than what people were expecting," said Steve Weinstein, an analyst with Pacific Crest Securities.

"They're also conservative (with guidance), but given how much acquired growth they have I would have thought they would have started higher than they are. It looks like they are guiding down for next year as well."

EBay stock, which rose about 4 percent in regular trading, sank 6.7 percent in after-hours trading.

The company said it expects consolidated net revenues in the range of $1.25 billion to $1.29 billion for the fourth quarter. eBay said its fourth quarter revenue estimates include $35 million from the acquisition of shopping comparison site Shopping.com and $20 million from the $2.6 billion acquisition of Internet phone company Skype, which allows users to call each other over the Internet. Some analysts and investors greeted the acquisition with skepticism over the cost of Skype and the compatibility of the two businesses.

For 2005 eBay forecasted revenues of $4.47 billion to $4.51 billion, above Wall Street's expectation of $4.43, according to Thomson FirstCall estimates.

"The revenue guidance (for 2005) was better than the Street was looking for; the earnings per share guidance was a little bit worse, and my fear is that it had to do with higher expenses associated with acquisitions," said Les Satlow, a portfolio manager with Salem, Mass.-based Cabot Money Management whose firm owns shares of eBay. "Those are very large acquisitions for a company like eBay and they need to show investors that they can integrate those successfully and drive profit and cash flow out of them."

The company announced $4.5 billion worth of acquisition deals this year, including a deal announced earlier this month to buy online payment system VeriSign for $370 million.

In a conference call to investors, eBay CEO Meg Whitman reiterated her optimism about the Skype acquisition, saying, "While the Skype of today is largely focused on community, we see incredible potential for its use in e-commerce. Integrating Skype into the eBay market place will reduce communication friction between buyers and sellers and increase the velocity of trade."

The company also announced that eBay CFO Rajiv Dutta will take over as president of Skype once a successor is named for his position. He will work with Skype CEO Niklas Zennstrom and Whitman on growing Skype and integrating it with eBay and PayPal.

The company demonstrated strong year-over-year growth in active users and the number of listings on its site. eBay said it now has 68 million active users, a 32 percent increase from a year earlier, and 168 million registered users, up 35 percent from a year earlier. New listings rose to about 459 million, also up 32 percent.

eBay's stock price has had a rough ride this year, tumbling after the company issued guidance that disappointed investors after the first quarter, but rallying in the third quarter.

Concerns about competition heating up in the online auction space have dogged the shares as well. But overall, analysts and investors seemed pleased with the company's growth, particularly its growth of active users in the U.S. and Germany, its two strongest market places.

Said Satlow, "The longer term story is that profit is still growing at 20 plus percent a year, and eBay is taking a longer term view of building its business. Investors should do the same instead of worrying about whether 1 penny of earnings per share is properly figured into consensus estimates."

Scott Devitt, an analyst with Legg Mason Wood Walker who has a "buy" rating on the stock, agreed.

"Maybe (results) were modestly below expectations and that's why you get a little bit of a sell off," of the stock, he said. "But I think the business is worth more than (where) it trades."

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Yahoo! shines, Wall Street shrugs: more here.

Sales, profits rise for Intel: more here.

Weinstein does not own shares of eBay and his firm does not own shares of the company, but it does make a market in the shares. Devitt's firm owns shares of eBay but does not have banking ties to the company.  Top of page

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