eBay Raises the Bar Again

Wall Street analysts were forecasting second-quarter pro forma earnings of 26 cents a share on $733.6 million in revenue, and 2004 earnings of $1.09 a share on $3.079 billion in revenue.

eBay continued to show strong growth across all three of its major divisions. Revenue from eBay's U.S. auctions division increased 39% from a year ago to $326.2 million. International auctions revenue jumped 87% from a year earlier to $257.1 million.

Revenue growth in eBay's payments division was particularly impressive. PayPal payments revenue grew 67% from a year earlier to $155.5 million. Spurred in part by adoption in the U.K., that growth is also significant because the quarter marks the first full one in which eBay also owned PayPal in the year-earlier quarter.

The company's international revenue, which grew slower than in past quarters, was boosted by a weak dollar relative to other currencies, resulting in a $47.1 million benefit on a year-over-year basis and $18 million benefit on a sequential basis.

The company's gross margin -- the difference between what a company charges for services and its direct costs of providing those services -- improved by 1 percentage point from a year ago to reach 82%.

During the first quarter, eBay generated $295.3 million in free cash flow, which represents operating cash flows less capital expenditures. eBay's balance sheet continued to swell, with its cash and short-term investments reaching $1.92 billion, up from $1.72 billion at the end of the year.

Nearly $77 million of the company's operating cash came from the tax benefit eBay receives from the exercise of employee stock options. eBay claims the gains employees see from options exercises as a payroll expense -- a deductible business cost. But the company doesn't expense stock options in its financial statements.

Likewise, stock sales, primarily those from options, generated about $173.1 million directly for eBay -- or 58.6% of free cash flow. When an employee exercises an option, the company receives the proceeds up to the exercise price.

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