Damp Outlook Splashes eBay

The stock drops 5% after the auction giant guides lower.
Author:
Publish date:

Updated from 4:21 p.m.

eBay

(EBAY) - Get Report

fell 5% after giving Wall Street a soft outlook for the second quarter in a row.

The San Jose, Calif., company posted a solid first quarter Wednesday, matching earnings and revenue targets and seemingly vindicating investors who sent the stock up 4% in afternoon trading ahead of the postclose report. But eBay then offered guidance that was below expectations, triggering an after-hours selloff.

For the first quarter ended March 31, eBay made $248.3 million, or 17 cents a share, down from the year-ago $256.3 million, or 19 cents a share. On a pro forma basis, excluding stock-based pay and other costs, earnings rose 24% from a year ago to 24 cents a share, hitting the Thomson Financial analyst consensus estimate.

Revenue rose 35% from a year ago to $1.39 billion, in line with the estimate.

"Q1 was an excellent quarter for the company, with strong growth across our portfolio of businesses," said CEO Meg Whitman. "eBay, PayPal and Skype are successful businesses on their own, and together they create additional opportunities for innovation and expansion."

Gross merchandise volume, reflecting the value of goods sold on eBay's sites, rose 18% to $12.5 billion during the first quarter. New listings jumped 33% to 575.4 million. There were 192.9 million confirmed registered users, up 31% from a year earlier.

"We had a great first quarter, outperformed the guidance that we set earlier in the year," says Bob Swan, eBay's chief financial officer, in an interview. "We feel that we are on track to deliver a very strong year."

In the quater, "the strengths were across the board," Swan says. "PayPal had an outstanding quarter, with 44% year-over-year growth." Revenue for Skype rose 42% sequentially to $35 million, as an average of 220,000 users signed up daily. He declined to say what percentage of users signed up for Skype's paid services.

Still, second-quarter and 2006 guidance left something to be desired in Wall Street's eyes. Earnings in the current quarter will be 22 cents to 23 cents a share on sales of $1.37 billion to $1.42 billion, the company says. Analysts had expected earnings of 24 cents on sales of $1.42 billion, according to Thomson Financial. 

For the year, the company expects to make 96 cents to $1.01 a share on revenue of between $5.7 billion and $5.9 billion. Expectations were for earnings of $1.03 on sales of $5.96 billion.

 In the conference call, Swan defended his company's cautious outlook. "The first quarter that we saw was great,'' he says. "We anticipate that Q2 and Q3 will be our weaker quarters.''    

The company is making some security upgrades that "could have an impact on revenues,'' he says. In addition, eBay's Korea business is facing renewed competitive pressures. "We think it's prudent to be conservartive at this stage," Swan says.

The lukewarm guidance may have dashed the growing optimism on Wall Street for eBay and may raise concerns among investors about potential competition from

Google

(GOOG) - Get Report

. Analysts have argued that a payment system being developed by Google will take business from eBay's PayPal unit. Both companies have repeatedly downplayed such talk. Many investors also have complained about the $2.6 billion price tag on eBay's recent acquisition of Internet-phone provider Skype.

eBay Express, a site that will only sell fixed price items, will launch next week, says Whitman in an earnings conference call. The site is "generating alot of excitement,'' she says.

eBay's mixed report has echoes of

recent earnings seasons. Back in January, the company hit fourth-quarter numbers but then offered guidance that was received as disappointing. Later, some analysts argued it was conservative, and five analysts increased their earnings estimates in the past month. But the stock has mostly traded down this year.

Indeed, all the big-cap Internet stocks have been pounded this year amid concerns about rising costs, increased competition and disappointing fourth-quarter earnings. On Tuesday,

Yahoo!

(YHOO)

reported in-line results, sending its shares up 7% Wednesday. Google results are due Thursday. Shares of the search-engine giant rose 1% Wednesday ahead of the release.

"Yahoo! just hit straight down the fairway and everybody cheers because they didn't lower their guidance, and eBay does not increase their guidance and the stock is taken into the woodshed after hours,'' says Philip Remek, an analyst with Guzman & Co. who has an underperform rating on the stock with a $40 target price. "It's just a matter of perceptions. The net revenues grow 35% in Q1. That's hardly bad.''

eBay rose $1.47 to $40.35 in regular action Wednesday before sliding $2.25 to $38.10 after hours.