For eBay, Good Isn't Good Enough

Updated from July 21

eBay (EBAY Quote) blew through analysts' quarterly estimates after the close Wednesday. But as feared, the company offered guidance that wasn't up to Wall Street's heady forecasts and shares tumbled, recently down $2.89, or 3.8%, to $73.71, although off their earlier low of $71.45.

The online auction giant earned $190.40 million, or 28 cents a share, in the second quarter. The company's earnings more than doubled its profits of $91.87 million, or 14 cents a share, from the same period last year.

eBay's revenue rose 52% to $773.41 million.

Analysts were expecting earnings of 25 cents a share on sales of $769.33 million, according to Thomson First Call. In April, eBay said that it expected to earn 24 cents a share on up to $760 million in revenue in the second quarter.

But the company's outlook for the third quarter and the rest of the year wasn't as bright as analysts had hoped. For the third quarter, eBay forecast earnings of 24 cents a share on $770 million in sales. In contrast, analysts were looking for earnings of 25 cents a share on revenue of $777.49 million.

Meanwhile, the company projected full-year earnings of $1.10 a share on $3.185 billion in sales. The company's earnings guidance is up four cents a share from its previous guidance, meaning that it effectively kept its second-half outlook unchanged, considering it beat its own second-quarter forecast by that same four cents a share. Interestingly, when eBay broke out its quarterly guidance, it did raise its per-share estimates for the fourth quarter by 1 penny to 30 cents a share.

Still, the company's guidance is below Wall Street's forecast. Analysts had predicted that eBay would earn $1.11 a share on $3.21 billion in sales this year, according to Thomson First Call.

eBay's revenue growth in the quarter was nothing to sniff at, boosted by strong domestic and overseas sales. But while eBay's business is still growing at a strong clip, it's clearly slowing. That's a troubling sign for a company whose heady valuation -- it recently traded for as much as 74 times predicted 2004 earnings -- is dependent on its future growth.