eBay Holds Steady Despite Mixed Quarter

First-quarter earnings beat estimates, but second-quarter targets fail to do likewise.

Author:: Tim Arango
Publish date:: Apr 19, 2002 12:25 PM EDT

Updated from 6:30 p.m. EDT April 18

Online auctioneer

eBay

failed to give investors what they wanted Thursday, but its shares held steady Friday in a largely upbeat market for tech stocks.

The company beat Wall Street's expectations for the first quarter, but gave guidance in line with what analysts had been projecting. Investors have looked to eBay for the growth many other tech companies have stopped providing, so any perceived shortfall is quickly punished.

After dropping sharply in after-hours trading Thursday, eBay shares inched 15 cents higher Friday morning to $53.19. Nonetheless, the stock is off some 20% for the year.

And while most of the metrics dealing with the auction business were solid, the company's advertising revenue disappointed. eBay said Thursday it expects $70 million in ad revenue for the year, but the had company been guiding to about $100 million. Now many analysts will have to chop off a few pennies from their full-year estimates -- which were already higher than the company's guidance in many cases.

"It wasn't a great quarter, but not a disaster," says Scott Devitt, who covers the company for Legg Mason. "The only thing you can really point to as disappointing is the advertising." (He has a market perform rating on the stock, and his firm doesn't have a banking relationship with eBay.)

Hitting Targets

The San Jose-based company said after the close of trading Thursday that it earned 18 cents per share, compared with 11 cents a year ago. On average, analysts expected eBay to earn 16 cents in the first quarter, according to Thomson Financial/First Call. eBay reported revenue of $245 million, up 58% from the $154 million reported in last year's first quarter and in line with Wall Street's expectations.

For the full year, the company said it expects to earn 73 cents to 75 cents a share, compared with a consensus estimate of 75 cents -- indicating the company could fall short of expectations.

Revenue from international businesses -- a key growth driver -- was strong, increasing to 21% of total revenue, up from 18% in the prior quarter. On the conference call, CEO Meg Whitman said the performance of international "amazes us."

On an annualized basis, eBay Motors sells $2.5 billion worth of cars, with computers and consumer electronics at $1.4 billion and $1.2 billion, respectively. Comparisons are tough, however, as eBay has not broken out financial details on these categories in the past, but analysts said these figures were strong.

Buyout Chatter

One interesting question that came up on the analyst conference call is whether eBay is considering buying out online payment system

PayPal

(PYPL) - Get Report

. A rumor circulated this week that eBay had its sights on the company, and PayPal executives clearly hinted in their conference call on Wednesday that the rumor didn't emerge out of thin air.

On the call, Whitman dodged the PayPal question and didn't address the question of a merger. She said that PayPal's growth is good for eBay because it "accelerates the velocity of trade" and improves the trust for online payments in general.

Just after PayPal hit the public markets earlier this year, eBay sought to more closely integrate its own payment system, formerly called Billpoint but changed to eBay Payments, into the auction site. It bought out its partner in the payments venture,

Wells Fargo

, earlier this year, triggering fears among PayPal investors that it could lose market share to eBay. But those fears abated after Wall Street looked more closely at the numbers and found just the opposite: that PayPal appeared to be taking market share from eBay Payments.

Thursday evening, Whitman also said eBay Payments is "slow and steadily growing." She says the company plans to keep pushing it on customers -- "steady awareness building" is how she puts it. She says eBay plans to offer e-checks, which are a cheaper form of payment than credit cards, and chargeback insurance as incentives to get users to use eBay Payments.

PayPal

reported a profit in its first quarter as a public company Wednesday, and CEO Peter Thiel acknowledged there are "synergies" between PayPal and eBay, but wouldn't confirm that any negotiations have taken place. The fact Thiel didn't give a flat out "no comment" had some observers saying that, at the very least, some preliminary discussions have probably taken place.

Past as Prologue

Until recently, eBay had consistently been nudging the financial bar higher, keeping up investor hopes that it can easily meet an ambitious target of reaching $3 billion in revenue by 2005. Thus, when the company reported fourth-quarter earnings and gave

guidance for the second half of the year that merely fell in line with expectations, the stock also sank.

The stock trades at a pricey 74 times earnings, and while most have few qualms about the company's business model many have found it increasingly tough to justify such an expensive valuation, especially since the company's practice of consistently raising its financial outlook appears to be ending.

On Island, shares slipped below $50, down over $3 from their close. In trading Thursday, eBay fell $1.89 to $53.04, putting the stock off roughly 24% on the year.