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eBay Survives Skype Scrape

The stock jumps after core operations offset a massive Web phone writedown.

Updated from 4:18 p.m. EDT



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time to shine.

Shares of the auction giant gained more than 5% in after-hours trading to cross the $41 mark after the company announced third-quarter results that trumped Wall Street's profit and revenue forecasts.

eBay also boosted its outlook for the fourth quarter as well as the whole year.

The strength of the company's auction business drove the strong results for the quarter. eBay's Marketplaces business saw revenue grow 26% year over year to $1.32 billion for the quarter. The strong revenue also came with a 5% slip in the number of listings on the site, suggesting that the company's recent efforts to cut low-quality listings to help user searches are paying off.

The company's PayPal payment service also delivered a laudable performance. Revenue grew 35% year over year to $470 million, while the amount of funds transferred through the service grew 34% to $12.2 billion. PayPal's continued strength is particularly impressive considering


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has been aggressively promoting its rival Checkout service.

Despite that growing competition, "simply put, people prefer to use PayPal when they shop online," eBay CEO Meg Whitman said in a conference call for investors.

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And despite several setbacks over the quarter, the company's Skype telephony service also delivered a healthy performance, at least in terms of top-line growth. Revenue for the service grew 96% year over year to $98 million.

Still, the division eBay shelled out $2.5 billion for in 2005 continues to be a sore spot. eBay took a massive writedown on its value during the quarter, and the service saw the departure of its CEO.

Despite the strong showing by its auctions unit, Whitman said that the company will continue to make changes and experiment with new features. "We are going to make more changes in the next few months than we have in the last few years," Whitman said.

For the third quarter, the online auctioneer said it lost $936 million, or 69 cents a share, in the third quarter, attributing the red ink to a previously announced writedown in the value of its Skype Internet phone division.

Excluding the writedown and other items, eBay earned $564 million, or 41 cents share, up 53% year over year.

Revenue came in at $1.89 billion, up 30% from the same period a year ago.

Analysts surveyed by Thomson Financial had expected earnings of 33 cents a share on revenue of $1.83 billion.

"eBay International, PayPal Merchant Services, StubHub, classifieds and our advertising businesses all performed above our expectations," eBay CEO Meg Whitman said in a press release.

For the fourth quarter, eBay expects earnings between 39 cents and 41 cents a share on revenue between $2.1 billion to $2.15 billion.

Analysts had forecast revenue of 38 cents on revenue of $2.06 billion.

For the year, the company expects earnings of $1.47 to $1.49 a share on revenue ranging from $7.6 billion to $7.65 billion.

Analysts expected earnings of $1.38 a share on revenue of $7.49 billion.

The company said it repurchased 14.8 million shares of its common stock for about $500 million during the quarter out of its authorized program to repurchase $2 billion by January 2009.