EBAY: Solid Quarter, but Subdued Guidance

Updated from Jan. 22

eBay (EBAY - commentary - Cramer's Take) reported solid results but offered conservative guidance. This seems to be the early theme of this earnings season.

Unfortunately for the stock, soft guidance will likely weigh on it during trading tomorrow. Additionally, while everyone was hoping for details on eBay's new pricing initiatives, management said it will unveil the new strategy in a separate release sometime next week. So it left some unanswered questions out there, and we know investors don't like uncertainty.

Headline EPS came in 4 cents ahead at 45 cents (+45% yr/yr), while revenue grew +27% to $2.18 billion. Cash flow growth was very solid, but the company also benefited from a lower tax rate.

Here are some other highlights from the quarter:

• Marketplaces revenue grew +21% year over year. Gross merchandise value (GMV) totaled $16.21 billion, +8% yr/yr (Int'l grew +16%)
• PayPal revenue grew +35% yr/yr, accelerating for the third straight quarter.
• Skype revenue grew +76% (Who uses this? Please email me if you do) .
• New listings grew +4%, after several quarters of stagnant growth; quarter ended with 83 million active users (+7%).
• International revenue (53% of total) grew +35%; U.S. revenue grew +18%.
• Operating margins increased to 34.6%.

The company also repurchased 9.2 million shares for an average cost of $33.90, which doesn't look so great right now. And the board authorized an additional $2 billion buyback.

CEO Meg Whitman announced she will be stepping down at the end of March and turning over the reins to John Donahoe, who spent a considerable amount of time on the conference call talking about new initiatives for the company aimed at overhauling the user experience and reinvigorating new listings.

He said the company will focus on more fixed price offerings, tweak the Web site to increase the ease of use factor, and implement new pricing features in an effort to get sellers to list more high quality items.

While all that sounds good, the bloom came off the rose as soon as the company offered soft guidance. Management said that EPS next quarter should be 37-39 cents (vs. 40 cents consensus), and revenue should be $2.0 billion to $2.5 billion (vs. $2.15 billion). For full year 2008, EPS is expected to be in the range of $1.63-$1.67 (vs. $1.67), and revenue in the range of $8.50 billion to $8.75 billion (vs. $9.02 billion). So the company lowered the bar pretty much across the board.

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At the time of publication, Kahn was long Google.

Jordan Kahn, CFA, is a portfolio manager with Bevery Investment Advisors, a Beverly Hills, Calif., money manager. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. Kahn appreciates your feedback; click here to send him an email.