EBay: We Are Not Announcing Any Large U.S. Acquisition

NEW YORK (TheStreet) - EBay (EBAY) said a $6 billion repatriation of the company's foreign earnings doesn't mean the company is about to announce a large U.S. based acquisition. The company did say having that cash parked in the U.S. will help its financial flexibility in growing divisions such as PayPal and could be utilized for deals when an opportunity emerges.

"Just to be clear: we are not announcing any large U.S. based acquisition," eBay CFO Robert Swan said in an earnings call with analysts after first quarter results were released.

Swan's comments clarify speculation that eBay may be in the process of a large acquisition after repatriating $6 billion in foreign profits, creating a $3 billion tax charge against the company's first quarter earnings. Swan also said the repatriation doesn't mean eBay will finance share buybacks with foreign earnings.

EBay bought back $1.8 billion in stock in the first quarter as part of a planned $5 billion annual buy back.

Increased U.S. cash will give eBay the flexibility to continue investing in its fast-growing businesses such as PayPal, Bill Me Later and StubHub, while also providing room for the company to map out strategic acquisitions or growth plans. It also reflect eBay's belief that growth opportunities lie in the U.S. and not abroad, where the company had historically kept its foreign earnings.

"Our historical election was no longer valid so that accounted for the accounting change," Swan said. EBay left open the prospect that the increased U.S. cash could be used for an acquisition, with CEO John Donahoe acknowledging a heavy amount tech-sector M&A in 2014. 

"We are executing our growth plans, capitalizing on the synergies in our portfolio and aggressively executing our $5.0 billion share buyback program," Donahoe said in a statement released with earnings. CFO Swan also confirmed that the $3 billion non-cash charge would turn to a cash hit if eBay does repatriate the funds.

"When we bring that money back, we'll actually have to write a check," Swan said.

First Quarter Earnings

In first quarter earnings, eBay beat a conservative guidance after it settled a very public two-and-a-half-month battle with billionaire activist investor Carl Icahn. However, the company's tax-related charge may cloud strong first quarter operational performance at the e-commerce giant.

EBay reported a non-GAAP profit of 70 cents a share on revenue of $4.3 billion, beating core earnings forecasts. GAAP earnings were clouded by what eBay said was a "discrete tax charge" of about $3 billion on the repatriation of $6 billion in foreign profits.

On a GAAP basis, the company lost $1.82 a share for the quarter. That charge, a surprise to consensus, may have surprised some investors and analysts. eBay shares were falling more than 3% in after-hours trading.

In January, eBay said in January that it expected first-quarter net revenue in the range of $4.15 billion to $4.25 billion. San Jose-based eBay said it expected GAAP earnings in the range of 51 cents to 53 cents a share and non-GAAP earnings in the range of 65 cents to 67 cents a share, including a 1- to 2-cent dilution for the Braintree acquisition, which it completed in December.

Analysts had assumed at the time that the guidance would be easy to beat. According to Thomson Reuters, consensus estimates expect eBay to report earnings of 67 cents a share on revenue of $4.228 billion. Excluding the tax-related repatriation charge, eBay did beat earnings.

Better than expected core earnings mean eBay has set a foundation to continue to post growth across its key Marketplaces, Enterprise and Payments divisions. Enabled commerce volume increased 24% in the first quarter to $24 billion, while mobile ECV increased 70% to $11 billion.

PayPal net payment volumes grew 27%, causing revenue to rise to $1.8 billion. The payment platform also added 5.8 million new users, or a 16% increase. eBay's Marketplaces division reported a 12% uptich in gross merchandise volumes and revenue of $2.2 billion. The company's eBay Enterprise division reported 16% gross merchandise sales growth, with revenue for the quarter rising to $269 million.

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Second Quarter Guidance, Looming Activists

For the second quarter, eBay forecast new revenue in the range of $4.325-to-$4.425 billion and GAAP EPS of between 51 cents-to-53 cents. For the full-year, eBay now forecasts between $18 billion to $18.5 billion in revenue and $2.95-to-$3 in non-GAAP EPS.

On a conference call, CFO Swan said eBay's capital expenditure would end the year at between 7%-to-9% of revenue, up from the 5% figure posted in the first quarter. An election to repatriate a greater portion of foreign earnings going forward will increase eBay's tax rate by 1% to between 20%-to-21%.

Whether or not eBay's earnings results or full-year guidance can move the company beyond tussles with its investors is to be seen. Carl Icahn had no comment on eBay's earnings on Twitter, after quickly providing a positive reaction on Twitter to Apple (AAPL) and Herbalife's (HLF) earnings.

Icahn wasn't immediately available for comment.

-- Written by Antoine Gara, with Laurie Kulikowski in New York.

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