eBay Shares Tumble (Update) - TheStreet

SAN FRANCISCO -

eBay's

(EBAY) - Get Report

second-quarter earnings beat wasn't enough to overcome investors' disappointment late Wednesday over the company's failure to show meaningful growth.

Shares of eBay were off 6.6% in recent after-hours trading to $26.24.

Gross merchandise volume -- the total value of all goods sold on eBay -- totaled $15.68 billion, an increase of 8% over the same period last year but a drop from the 12% year-over-year growth seen in the first quarter.

Excluding favorable foreign currency exchange, gross merchandise volume grew only 4% in the second quarter.

The online auction giant blamed the slowing economy and a drop in the average selling price for items trading hands on its site.

"The good news is that buyers are getting a good deal but we don't convert that to higher (gross merchandise value)," said John Donahoe, chief executive officer of eBay, during a conference call with analysts.

The auto category was particularly weak, showing no growth in gross merchandise value in the second quarter vs. 7% in the first quarter.

Although eBay's listings swelled by 19% from a year ago, the number of active users increased by only 1%. Donahoe also noted that the company was hurt by higher discounting offered to the company's active "power sellers" for improving their ratings, as well as by coupons to buyers to retain customer loyalty.

Donohoe said eBay intends to keep tweaking the site to improve the user experience and draw in more people.

"We're going to take these actions and bear the short-term risks," he said.

For the second quarter, eBay posted earnings of $460 million, or 35 cents a share, up from $376 million, or 27 cents a share, a year ago. Excluding items, the company earned $568 million, or 43 cents a share. On that basis, analysts surveyed by Thomson Reuters had predicted earnings of 41 cents.

Second-quarter revenue was up $2.2 billion from $1.83 billion a year ago. Analysts were expecting revenue of $2.17 billion.

For the third quarter, eBay said it expected to earn 39 cents to 41 cents a share before items on revenue of $2.1 billion to $2.15 billion. Analysts had expected third-quarter earnings of 41 cents on revenue of $2.18 billion.

For the year, eBay raised its guidance to the range of $8.8 billion to $9.05 billion from its previous guidance in the range of $8.7 billion and $9 billion. It now expects earnings of $1.72 to $1.77 before items, compared to its previous guidance of $1.70 to $1.75.

Analysts had predicted full-year earnings of $1.74 on revenue of $9.01 billion.

The company was quick to point out that while its marketplace is experiencing some weakness, there are other revenue streams that it is increasingly relying on, including classified ads, PayPal and Skype. PayPal's revenue in the second quarter was up more than 30% while Skype was up more than 50%.

eBay Chief Financial Officer Bob Swan noted that the marketplace used to represent 66% of the company's total revenue, but now accounts for 57%.