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EBay Beats, But Doesn't Raise And That's Not So Good

Wednesday, 16 Jul 2008 | 4:58 PM ET

For eBay , quarterly results are normally all about "beat and raise." Beat the Street's estimates in the current quarter, and raise guidance for the upcoming quarter.

This time around, batting .500 just isn't good enough for the online auction powerhouse, especially when so many on the Street expected them to beat anyway.

EBay reported 43 cents a share in earnings per share, two cents better than Street consensus; that news came on better-than-expected -- if only slightly -- revenue of $2.2 billion. Analysts expected $2.17 billion. And you gotta think that at least part of the beat comes not from better than expected business, but the aggressive share buyback eBay has been engaged in.

The problem for eBay comes from its third quarter and full year guidance. The company offers a new EPS range of 39 to 41 cents. The Street was at 41 cents. eBay also expects between $2.1 billion and $2.15 billion. That's actually below the Street consensus of $2.18 billion. That's not necessarily disastrous. eBay, like Apple Inc. , tends to be very conservative in its guidance, but offering a range that's below consensus, and not in the range of consensus, is a little surprising.

For the full year, eBay now offers an EPS range of $1.72 and $1.77, and a revenue range of $8.8 billion to $9.5 billion. Again, the revenue range falls below the Street's mid-point of $9.01 billion, and after shares jumped almost 5 percent ahead of today's report, this is certainly not the outlook investors were hoping for.

Still, you have to dig a little deeper into the release to hit the metrics that really matter. The one key figure that jumps out at me is the total Gross Merchandise Volume, which might be the best way to gauge the health of eBay's core auction business.

The Street was looking for 11 percent year-over-year growth here, with Citigroup's Mark Mahaney telling me above 12 percent would be "good," anything between 10 and 12 percent would be neutral, and something below 10 percent would be "bad." eBay posted only 8 percent growth here. I should have been more specific in my last post when I referred to GMV of 5 to 7 percent since that's what analysts were anticipating in the US only, not globally.

Why slow growth in GMV? Mahaney speculates to me that car sales are a big chunk of eBay's auction business and people just aren't buying cars nowadays, new or used. The big three automakers are in meltdown, and AutoNation and CarMax have suffered their fair share of problems. Unfortunately, eBay seems to have been caught in that downdraft.

Anyway, listings were also a disappointment, coming in at 666.9 million versus the 680 million or more that analysts projected. Couple that with the 8 percent GMV number with the disappointing guidance and you get the tepid, if negative reaction to eBay shares following today's report.

A bright spot for eBay has, and continues to be, its PayPal unit: The Street was looking for about 32 percent growth in that business, and PayPal beat expectations once again, growing 33 percent instead.

Still, eBay's got its work cut out for it. So many investors are hoping to see strength in its core business since the other things eBay's been trying to do to generate revenue just haven't materialized all that much. And with so much concern about the economy, and a lack of vision about where new money will come from for eBay, this stock could be stuck for the foreseeable future.

eBay Earnings Analysis
Analysis of eBay's earnings report, with CNBC's Jim Goldman

Questions? Comments? TechCheck@cnbc.com

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