eBay Rallies After Upbeat Earnings, Conference Call

Third-quarter earnings come in at 7 cents a diluted share, and guidance is optimistic.
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Updated from 6:51 p.m. ET

Wow! Good earnings news from an Internet company!

eBay

(EBAY) - Get Report

Thursday reported stronger-than-expected earnings and revenue growth for the third quarter, as its main auction business kept chugging along and newer initiatives like auto sales showed promising results. Its shares surged in after hours trading.

The San Jose, Calif.-based online auction company said net income excluding noncash and stock-related charges was $19.1 million, or 7 cents a share. That was up from $3 million, or a penny a share, a year earlier. Analysts had forecast earnings of 4 cents, according to

First Call/Thomson Financial

. Sales rose to $113.4 million, representing a 94% jump from the same quarter a year ago and a 16% increase from the second quarter. Analysts had expected revenue of about $107 million.

"It's a great quarter, especially compared to the gloom and doom you're hearing on other

earnings conference calls," says Adria Markus, an analyst with

Epoch Partners

. (Her firm doesn't have ratings and it hasn't performed underwriting for eBay.)

In September, eBay said it aims to record $3 billion in revenue in 2005. To that end, CFO Gary Bengier said while he's comfortable with analysts' estimates for the current year, he expects revenue in 2001 to reach about $630 million, which would represent growth of about 50%. Gross margins should improve to the "low 80s" by the end of 2001, while operating margins will likely slowly increase to 18% to 23% over the course of the year, he said. Analysts were looking for guidance about next year in light of the company's long-term goal.

"We remain committed to aggressively expanding our U.S. business and will continue to enable new product categories, particularly in services," said CEO Meg Whitman on a conference call with investors and analysts. She also cited real estate, tickets and an expanded B2B offering as likely new areas. Still, she said that the company isn't planning willy-nilly expansion. "We will not be distracted by fashionable or unrelated ventures," she said. (That probably rules out a last minute bid for

Priceline WebHouse

.)

Whitman also praised early results from fixed-price site

Half.com

, which eBay bought in July. In August, the site was the fourth most visited shopping site on the Web, and has 6 million items for sale. While it didn't do much for revenue in the third quarter, by the third or fourth quarter of 2001 it will likely start making a real contribution to the main business, she said. "We're dialing up the integration with the core eBay site, and we need category expansion," she said. Right now, Half.com sells just books, music, videos and games, but that selection will increase next year. In addition, half will be rolled out internationally next year, she said in an interview.

eBay said new auto sales, through its partnership with

AutoTrader.com

, saw a 40% increase in listings from the prior quarter. Total merchandise sales were $1.4 billion in the quarter, while the number of registered users jumped to 18.9 million. Revenue per user continued to decline, in part because the third quarter isn't as strong as the first and fourth quarters, but also because later adopters don't initially spend as much money. "It may continue to decline as we bring in new users," said Whitman.

eBay's shares rose to $66.47 in recent after-hours trading on

Island

, up 16% from its $57.19 close.