eBay stock soars on outlook

Strong 2007 outlook sends shares soaring 12.5 percent after hours; company posts 24 percent jump in profits.

By Rob Kelley, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Online auction site eBay reported earnings that rose 24 percent from the year-ago quarter, beating analysts' estimates.

The company also reported strong guidance for the coming quarter and full year, which investors liked.

Shares of eBay soared 12.5 percent to nearly $34 in after-hours electronic trade on the news.

The company reported fourth-quarter earnings, excluding certain items, of 31 cents per share, compared to analyst expectations of 28 cents per share, and up from 20 cents per share in the year-ago quarter. Net income, including all one-time gains and charges, was 25 cents per share.

Revenue was higher at $1.72 billion, up 29 percent from the $1.33 billion in sales that eBay reported for the fourth quarter of 2005, and higher than the $1.67 billion predicted by analysts.

The company's core business had a strong fourth quarter. The total value of all items sold on the site in the quarter reached $14.4 billion, up 20 percent from $12.0 billion in the year-ago quarter.

The auctioneer's problems

Ebay's stock has declined 32 percent in the previous year as investors worried that the company's core business was maturing and it was not finding new growth markets.

Analysts have said eBay needs to diversify beyond its core online auction business, which it had been trying to do with its PayPal online payment unit and Skype Internet telephone service.

"All three of the company's business units delivered impressive results this quarter, including record net revenues from our Marketplaces business, strong total payment volume on PayPal, and a triple-digit increase in the number of Skype users," said chief executive officer Meg Whitman in a statement.

Its marketplaces division - which includes auctions and store listings - had revenue of over $1.2 billion in the fourth quarter, for 24 percent year-over-year growth.

In the payments division, revenues grew 37 percent year-over-year to $417 million.

"PayPal continues a key growth driver and value creator for eBay," Laura Martin, senior Internet analyst at Soleil Securities, told CNNMoney. "But eBay has yet to prove the strategic relationship between its core business, PayPal and Skype."

In communication, Skype revenues grew to $66 million, up 164 percent from the year-ago period.

The company benefited from 2006's strong online shopping rush, when more people bought gifts on the web than ever before.

Also, eBay had been actively working to counteract a trend towards lower-profit store-format listings dominating the site.

"Ebay thinks that the rebalancing effort is in progress, but we think there's more room to move store listings toward auctions, which drives profit growth," said Martin.

Online advertising giant Google (Charts) has recently challenged eBay with its Google Checkout product, using deep discounts to attract new customers.

Investors appeared to be pleased by the company's guidance.

The company said it expects net revenues for the first quarter to be in the range of $1.67 billion to $1.72 billion, compared to analysts' estimates of $1.67 billion. eBay also said it expects earnings of 28 cents per share to 30 cents per share, compared to expectations of 29 cents.

For all of 2007, eBay said it expects earnings of $1.25 to $1.29, compared to the $1.23 expected by analysts. Revenues were expected to be between $7.05 billion and $7.3 billion, in line with analysts' predictions of $7.16 billion.

On January 11, eBay agreed to buy online sports ticket reseller StubHub for $310 million, with the deal expected to close in the first quarter of this year. (Full story)

In December, eBay made the big decision to fold its main operation in China, opting instead to partner with a local wireless company, Tom Online, with a much larger present base of customers.

The company also repurchased about 31 million shares of its stock during the fourth quarter at a cost of around $1 billion, for a total of $1.7 billion in stock since the program was initiated in July 2006.

Shares of eBay (Charts) rose 4.8 percent in Nasdaq trade Wednesday to close at $30.00.

Analysts quoted in this story do not owns shares of the companies mentioned and their firms have no investment banking ties with the companies.


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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.