Updated from 12:13 p.m.
The jury is still out on
The auction giant announced first-quarter results on Wednesday that came in ahead of Wall Street expectations. And while the company raised its forecast for the next quarter and the rest of year, investors didn't seem hugely impressed.
Shares of eBay rose in postclose trading Wednesday and held steady early Thursday. But a selloff that started at midafternoon took the stock down more than 3%, erasing some recent gains.
Heading into Thursday's session, eBay was up almost 15% this year, making it the best performing large-cap Internet stock
after a selloff sent
tumbling on Wednesday.
eBay's stock has made strides since the company dispelled fears that its core auction business was stalling. Back in the fourth quarter, the
company reported reignited growth in its Marketplace business after management tweaks seemed to be taking effect.
But on Wednesday, the company reported that growth in the Marketplace business again had slipped slightly on a sequential basis to 23% year-over-year growth from 24% in the fourth quarter.
That raised some flags among Wall Street analysts. "On the less positive side, the Marketplace continues to show signs of maturity," Stifel Nicolaus analyst Scott Devitt wrote in a research note on Thursday. We anticipate that eBay's organic growth rate will moderate into the midteens in 2008 and low teens in 2009." Stifel Nicolaus makes a market in eBay shares.
Accounting for nearly $1.25 billion, or 70%, of the $1.79 billion in first-quarter revenue, the Marketplace business is closely watched by investors and crucial to the company's financial performance.
eBay's plan to jump-start growth again is to remove low-quality listings and clutter from its Web site. The company hopes this will make it easier for buyers to find what they are looking for and lead to a higher percentage of purchases. This, in turn, will make eBay's platform more attractive to sellers and aim to create a virtuous cycle.
"Clearly what our intentions are, and I won't recapture all the things we're trying to do to improve the user experience, is that we will continue to get a benefit from improved conversion rates, which will in turn bring more listings to the site, and the combination of the two will accelerate
gross merchandise volume," eBay CFO Bob Swan said during the conference call with investors. "But that is something we have to prove out as we go."
While the Marketplace business accounts for the lion's share of revenue, the company is pinning much of its future growth hopes on its popular PayPal payment service and Skype Internet telephone offering. Both reported solid progress in the quarter. PayPal, which brought in $439 million in revenue, grew at 31% year over year. Skype accounted for just $79 million in revenue, but grew 123%.
eBay also announced the expansion of its partnership with
via PayPal. eBay will provide Yahoo! merchants and advertisers with a quick checkout tool that uses PayPal to make payments. The move will bolster PayPal's position against Google's high-profile Checkout service.
eBay CEO Meg Whitman, meanwhile, continues to try to merge the decade-old company to the Web's cutting-edge trends. "We were the original social-networking site," she said on Wednesday's conference call, referring to technologies behind recent smash hits like
MySpace and Facebook. And on a television interview on Thursday morning, Whitman played up eBay's auction listings as "user-generated content" -- the trend that has made Google's YouTube a star.
That's probably a stretch, but eBay remains a well-run company with a loyal user base. The company continued to show increasing operating margins over the quarter, and its revitalization speaks to management's ability to maneuver out of tough situations. And with a valuation of 22 times forward earnings -- modest for the Internet sector -- the company presents a compelling value.
"eBay is a maturing, high-quality company trading at a respectable valuation, in our view," Devitt wrote. "As we have said in the past, we do not believe returns in eBay shares will ever be the same as they once were but we believe the shares offer a reasonable, risk-adjusted return."
That's a tough thing to find among Internet stocks these days.